beaux

Agency-Backed Mortgage REITs at a Crossroads

Given that NLY is a buyer of fixed rate MBS their risk stems net interest margin compression that results from the repricing of liabilities. NLY's proactive approach to managing/heding this risk is therefore sensible and stratgeic. Also, their running lower leverage while awaiting assets to become available at lower prices/higher yields addresses the asset risk.

In a way I do not see Strategy 1 and 2 as being mutually exclusive -- Strategy 2 simply may just have less duration mismatch risk stemming from shorter duration assets that does Strategy 1. Thus less of a need for liability management.

As for Strategy 3 which is based on stretching for yield -- that one seems most like picking in front of a bulldozer. I say, in the words of Monte Python, "run away".

Disclosure: long NLY.