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Renewed selling hits mREITs (MORT -1.2%) as Treasury yields turn decidedly higher, TLT -0.8%....

Renewed selling hits mREITs (MORT -1.2%) as Treasury yields turn decidedly higher, TLT -0.8%. Getting the worst of it today is Ellington Financial (EFC -3.3%) - a partnership, not a REIT; it's more trading shop, but still leveraged to credit and interest rates. It's recently IPOd mortgage REIT counterpart EARN -1.1%. Also notably lower is CYS Investments (CYS -2.6%), American Capital (AGNC -1.8%), (MTGE -1.5%), Annaly (NLY -1.3%), and Armour Residentail (ARR -1.3%).
Comments (15)
  • jpmist
    , contributor
    Comments (326) | Send Message
     
    I think the saying is "markets can remain irrational longer than you can stay solvent. . ."

     

    Whew. . .

     

    The spread for mREITs is now about 25% higher than what it was 4 weeks ago. This will likely be reflected in higher net interest income for mREITs when they report earnings in a few weeks.
    31 May 2013, 01:32 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2576) | Send Message
     
    And lower BVs..I think they see a spike higher when dividends are announced. Long (and wrong this month) AGNC
    31 May 2013, 03:09 PM Reply Like
  • Dividend Living
    , contributor
    Comments (266) | Send Message
     
    It could be a while before there is significantly higher net interest income, it seems to take a while for that to kick in. In Q1 there was higher mortgage rates and lower spreads in AGNC, NLY. At least its a new month and dividend announcements are coming up soon. These stocks need some positive news to rebound it seems.
    31 May 2013, 11:28 PM Reply Like
  • Scott Eranger
    , contributor
    Comments (115) | Send Message
     
    I'm not overly concerned, but perhaps I should be.
    31 May 2013, 01:58 PM Reply Like
  • irnet31
    , contributor
    Comments (102) | Send Message
     
    THE SAYING IS ONE SHOULD NEVER SELL INTO PANIC. EXCEPT WHEN PANIC LEADS TO INCURABLE DISEASE. I HAVE BEEN ONTO MY REITS. MY GRIP IS WEAKENING.
    31 May 2013, 03:01 PM Reply Like
  • itscalledcommonsense
    , contributor
    Comments (593) | Send Message
     
    Hey, isn't rising LT rates good for these stocks? What is happening???
    31 May 2013, 04:10 PM Reply Like
  • tstreet
    , contributor
    Comments (698) | Send Message
     
    Seems counterintuitive but the rising rates only apply to future purchases and in the mean time one is taking a loss on current securities in order to purchase new securities with a higher rate. Anyway, that was the take I got from another article this morning on SA that explained this phenomenon. To make a long story short, this author explained that rising rates are not good for the MREITs. His thesis was that stable or declining rates are better. I guess you have to decide for yourself whether or not that makes sense.

     

    Long term treasuries went up again today so that presumably explains the further decreases in the MREITs.

     

    Perhaps it is a truism that in the long term, this situation will turn around. But what constitutes a long term and can one stand the pain waiting for the long term? I am down to about 25% of what I owned two weeks ago. Probably will stick my current holdings but will not add until dividend announced if at all.
    31 May 2013, 05:17 PM Reply Like
  • GerryStilton
    , contributor
    Comments (6) | Send Message
     
    tstreet,

     

    Do you have a link to the article you are referring to? Please share the link if you still have it.

     

    Thanks,

     

    Gerry
    1 Jun 2013, 09:42 AM Reply Like
  • Dividend Living
    , contributor
    Comments (266) | Send Message
     
    Stable or declining rates means that the BV stays the same or increases, but with declining rates the spreads starts to shrink. With rising rates the BV goes down but the spread starts to increase. It may take a quarter for a new rising rate environment to start to show increase in earnings, but who can tell if this FED tapering is going to happen or not? we could see rates go back down. It depends on what the FED thinks about the economy. What would be more important to know I think is what the FED is going to do with its MBS once it does cut off buying them. Sell, trade, or hold. I think hold is the best for Mreits and I would be surprised if the FED does anything else but hold, they want mortgage rates to stay stable and don't want to loose money.
    1 Jun 2013, 05:28 PM Reply Like
  • yisroal
    , contributor
    Comments (11) | Send Message
     
    If you are in for the long haul then this is a fire sale. Once to QE jitters slow down things will settle and the Market Makers etc will jump in fast. Waiting for the bottom is not always the best idea. So now would be a good time to get in on the sale. Once this turns you will find yourself chasing the bid faster then you can push the button. AGNC, MTGE are still paying a great dividend. If they trim off a bit over the next 3 weeks it is still a great dividend.
    31 May 2013, 04:10 PM Reply Like
  • Lance Brofman
    , contributor
    Comments (597) | Send Message
     
    The price action suggests one or more of the Mreits is having funding problems. It is all good and well to use 5-year swaps to "extend" 30-day repo funding to an effective 5-years but if the counterparty get nervous about the collateral you have a problem rolling it over. That would meaen they would suspend dividends now and hope to either straighten out the funding issues by the end of the year or take realized losses to avoid the dividend requirements.
    31 May 2013, 04:19 PM Reply Like
  • jthegolfer
    , contributor
    Comments (66) | Send Message
     
    Explain "price action " in conditions like posible QE slow down. I t looks like a bargain shop to me. Why would I not buy if this is only a scare, like many you have if you own mreits. Please explain further.
    31 May 2013, 05:01 PM Reply Like
  • richbar
    , contributor
    Comments (790) | Send Message
     
    I held my covered AGNC position and bought back the calls and wrote lower strike ones as the stock price dropped. Finally I sold OTM puts to increase my exposure. Can't do any more as I'm overweight the sector enough as it is.

     

    My take - I think that AGNC will pay a $1.00-$1.25 quarterly dividend for the rest of this year and possibly a higher payout next year as they turn over their portfolio. Book value could fall another few dollars and the stock price could be a few dollars below this if it trades at a discount. But why worry about book value and the stock price for that matter? Just hold it, collect double digit dividends, and sell OTM calls to add a little more income.
    31 May 2013, 08:31 PM Reply Like
  • joecap4c
    , contributor
    Comments (63) | Send Message
     
    Lottopol can not answer but has done his work by inserting some doubt into funding by AGNC no evidence. but stow confusion and fear. He/she will drive the weak out. Why did one buy in the first place. if that rational hasn't changed then why sell now. just my thoughts.
    1 Jun 2013, 08:37 AM Reply Like
  • Robert Welsch
    , contributor
    Comments (3) | Send Message
     
    I just retired from a steel mill, I thank all of you for your comments, they are helpful. I have NLY, ARR, CIM, am going to hold and use for income, hope everything gets better.
    3 Jun 2013, 02:28 AM Reply Like
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