AGNC: Rising Mortgage Spread Signals Trouble For Agency REITs

Jul. 12, 2021 2:05 PM ETAGNC Investment Corp. (AGNC)43 Comments
Harrison Schwartz profile picture
Harrison Schwartz


  • While agency mortgage REITs carry minimal credit risks, they carry immense exposure to the spread between mortgages and treasuries.
  • This spread has been artificially suppressed by the Federal Reserve's immense mortgage-backed-security purchase program.
  • The Fed's ability to keep the mortgage spread below its equilibrium level is fading despite continued purchase pressures.
  • The coming end to the eviction moratorium or Federal Reserve tapering may create dislocations that catalyze a larger widening of the mortgage spread.
  • As the mortgage spread normalizes, AGNC's book value may decline 20-40% - making for a short opportunity for those looking to hedge against downside risks.

Federal Trade Commission and Housing Finance Agency seals in downtown with closeup of sign and logo
krblokhin/iStock Editorial via Getty Images

Mortgage REITs have been in a highly volatile period since the beginning of 2020. During the COVID crash, most lost well over half of their value as widespread margin calls triggered fear of mass bankruptcies. Fortunately, the Federal

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Data by YCharts

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in AGNC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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