The iShares FTSE Nareit Mortgage REIT ETF (REM +2.1%) is nicely ahead this session, but sill down more than 3% on the week.
This week, of course, included the expected Fed rate hike, but the unexpectedly hawkish guidance for 2017. The 10-year Treasury yield has surged all the way to 2.60%, and the two-year yield - at 0.6% just five months ago - flew all the way to 1.26%.
Also hurting this week was a big decline in book value in November at AGNC Investment (AGNC +1.7%) - a bellwether of sorts for agency mREITs.
Other movers today: Annaly Capital (NLY +2.8%), Armour (ARR +1.3%), Two Harbors (TWO +2.1%), CYS Investments (CYS +3.7%), Invesco (IVR +3.6%), New York Mortgage (NYMT +3.4%), MFA Financial (MFA +2.1%), Western Asset (WMC +3.2%), Anworth (ANH +2.9%), Dynex (DX +2.6%).
It's no surprise that AGNC's book value declined in November given the huge jump in interest rates that month, but the near-9% tumble in book since the end of Q3 was more than double the estimate of KBW's Bose George.
Maybe putting a bigger shudder through the rest of the sector, AGNC is among the better-hedged players, says George, and thus one of the companies better-positioned to withstand a rising rate environment.
Also on mREIT (NYSEARCA:REM) investors' minds was yesterday's Fed meeting - the Fed Funds rate was boosted as anticipated, but the median forecast for next year was lifted to three rate hikes vs. two previously.
BAML bails, downgrading AGNC to Underperform from Neutral. The $16 price target compares to yesterday's close of $17.89. Shares -1.9% premarket to $17.55.
Annaly Capital (NYSE:NLY) is also downgraded to Underperform at BAML, and is off 0.8% premarket (Annaly and pretty much all of the rest of the sector do not report book value on a monthly basis, so investors will wait in suspense until Q4 results next year).
The risk/reward on AGNC Investment (NASDAQ:AGNC) is no longer compelling at current levels," says Douglas Harter, downgrading to Neutral from Outperform, and cutting the price target to $19.50 from $21 (last night's close $18.09).
He expects a whopping 7.8% decline in book value through November (to be announced on Dec. 12). This comes against his forecast of a 2.6% decrease in book value for the sector (NYSEARCA:REM) as a whole, and flat economic return (defined as the change in book value plus the dividend) for Q4.
As far as AGNC's relative valuation at the moment, it trades for 91% of tangible book vs. just 84% for fellow sector giant Annaly Capital (NYSE:NLY). The sector as a whole trades at 91% of book. He's also cutting Annaly's PT to $11 from $11.50, along with CYS Investment (NYSE:CYS) to $8.50 from $9. Chimera Investment (NYSE:CIM), however, gets its PT boosted to $17 from $15.50 to reflect strong incremental returns.
Harter and team's top picks remain those names with less exposure to interest rate risk, better historical track records, and lower book value volatility: Two Harbors (NYSE:TWO), New Residential (NYSE:NRZ), PennyMac (NYSE:PMT), and Starwood (NYSE:STWD).
Though lagging the S&P 500 by about 100 basis points since the election (and the banks by a mile), the mortgage REITs are nevertheless higher since the election despite the sharp rise in interest rates.
Mortgage REITs are carry players, of course, and can expect to see boosts to income if long rates rise faster than short rates (though book value could take a hit).
The iShares FTSE Nareit Mortgage REIT ETF (REM +1.2%) today is outperforming the S&P 500's 0.35% advance. The 10-year Treasury yield is down five basis points to 2.30%.
Alongside declaration of its $0.18 monthly dividend, AGNC Investment announces Oct. 31 book value per share of $22.63 and estimated net tangible book value per share of $20.95 (tangible book excludes intangible assets on the books as part of the purchase of the management company). AGNC closed today at $19.08.
Thirty days earlier, BVPS was $22.91 and TBVPS was $21.23.
The 10-year Treasury yield is making new bear-cycle highs today, up another seven basis points to 1.86% - its perkiest level since May. The move up in yields is global, with U.K. 10-years up 11 bps and Germany's up 8.5 bps.
Facing at least a little more competition in the yield department, equity REITs have turned sharply lower, with VNQ down 2.1%, and IYR off 1.8%. Mortgage REITs (REM -0.6%) are faring a little better as solid Q3 earnings begin to roll in.
The major U.S. averages have given up early gains and turned red, led by the S&P 500 and Nasdaq, both off 0.25%.
Individual equity REITs: Verreit (VER -2.2%), Welltower (HCN -2.4%), Equity Residential (EQR -1.6%), Omega Healthcare (OHI -3.2%), Simon Property (SPG -3.2%), General Growth (GGP -2.6%), Public Storage (PSA -2.9%), Gramercy Property (GPT -1.9%), Washington Real Estate (WRE -1.2%), Hersha (HT -2.9%), Sunstone Hotel (SHO -1.4%), Stag Industrial (STAG -2%)
Q3 net spread and dollar roll income of $0.64 per share vs. $0.56 earned in Q2. Dividends of $0.56 during quarter.
Net book value per share of $22.91 up from $22.22 three months earlier. Today's close of $19.84 is a 13.4% discount to Sept. 30 book. Tangible book value per share of $21.23 excludes $1.68 of goodwill and other intangible assets recognized as part of the company's purchase of its management company.
Economic return for the quarter of 5.6%, or 22.4% annualized.
CIO Gary Kain notes the quarter's strong performance was boosted by the recent internalization of management, which meant a big cut in operating expenses.