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The slides from Invesco's (IVR -1.4%) earnings presentation lay out in pictures the bear case...

The slides from Invesco's (IVR -1.4%) earnings presentation lay out in pictures the bear case (for some) on the mortgage REITs. A flattening yield curve is continually cutting net interest margins and higher prepayments mean a hit to book value as called paper - on the books at a premium - is paid off at par. Of course, ratcheting up leverage can offset some of this. (earnings)
Comments (5)
  • Matthew Davis
    , contributor
    Comments (3691) | Send Message
     
    They weren't bearish, they were steady. Where did you get the idea it was bearish, the conference call wasn't bad at all.
    3 Aug 2012, 03:53 AM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (540) | Send Message
     
    The post wasn't meant to say the presentation or the company was bearish - why would they be - but to point out why some are staying away from the sector.
    3 Aug 2012, 07:38 AM Reply Like
  • Matthew Davis
    , contributor
    Comments (3691) | Send Message
     
    As long as the company positions itself for rising rates, there is not much to worry about, however many investors who do not follow the dynamics of the sector just think carte blanche that an interest rate increase will decimate all mREITs, which is totally false.
    3 Aug 2012, 07:47 AM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (540) | Send Message
     
    Did you look at the presentation? It has zero to do with rising rates. The issue is falling rates - a flatter curve narrows the interest rate spread and also causes higher prepayments, both of which lead to lower earnings/hits to book value.

     

    I'm not saying this makes the sector a sell, but it is the reason many are bearish on it.

     

    As for higher rates - have you ever owned a mortgage REIT through a rate hike cycle?
    3 Aug 2012, 07:52 AM Reply Like
  • Matthew Davis
    , contributor
    Comments (3691) | Send Message
     
    Indeed, you are saying it causes a sell of in a rate hike, which is not my argument, its wrong to assume it will do poorly, but in general rate hikes are bad.

     

    A flattening curve does affect the reit strategy but their preparyment rate was only 9% and their book decreased by only .02cents. Also they are pulling out of non-agency and arm mbs to focus more on agency backed....yes I read the entire presentation, thanks.
    3 Aug 2012, 07:56 AM Reply Like
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