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Why REITs Could Be The Most Dangerous Income Investment
Just to add to the comments that have already torn this article a new one. Since the Fed funds rate will remain near 0 at least until tapering is over, the increase is long term rates is nothing but good for future NIM. The mREITs are selling off not due to the change in rates, but the rapidity of that movement. The scare here is a spike in near term rates will crush BVs. It's possible and even likely mREIT profits may increase this quarter due to rate increases, but that comes at a cost to a decrease in prices of currently held MBS. Additionally, as the Fed begins to taper, interest rates will likely increase as will the values of MBS because 45 billion per month in purchases has made the Fed the main player in the MBS market. An overall flattening of the yield curve seems unlikely and an overall shift upwards seems more probable in the intermediate term IMO. Long NLY.
Jun 28, 2013. 01:05 AM
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Annaly: Waiting To Buy Still The Best Course
Good article with some good insights. In my opinion, being short mREITs could be dangerous, as is investing in this sector in general. I'm long NLY and don't anticipate short-term action by the Fed but the danger to your projection is the Fed tapers the MBS portion of QE3 and leaves bond purchases alone. This will increase BVs of mREITs due to lower pressure on MBS prices and the revenues will stay similar due to a relatively unchanged rate spread. I think this action is the most likely because if tapering does begin, spiking rates effects the entire market, not just the MBS.
Jun 13, 2013. 03:24 PM
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