Annaly: Mortgage Market Capitulation May Be Around The Corner

Summary

• As anticipated, mortgage rates have risen dramatically as the Federal Reserve's purchase program ended.
• Higher mortgage rates have caused mortgaged-backed-security assets to plummet in value, causing significant book value declines for Annaly Capital and other mortgage REITs.
• Using Annaly's interest-rate sensitivity tables in February, I estimated the firm's book value had declined to ~$6.7 in Q1 - just below the realized measure of $6.77.
• Mortgage spreads have not risen since March 31st, but Treasury interest rates have, potentially pushing Annaly's NAV per share to an estimated $6.5.
• Rising rates cause the property market and economy, in general, to slow, and combined with Annaly's boosted leverage, may soon result in a wave of margin calls in the MBS market.

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2022 has been marked by a substantial increase in mortgage rates, nearly doubling from 3% in early January to almost 6% today. As rates rise, mortgage-backed securities decline, creating immense book-value pressure for many mortgage REITs. I first warned about this significant

Analyst’s Disclosure:I/we have a beneficial short position in the shares of NLY either through stock ownership, options, or other derivatives. 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.