Annaly positioned itself to reduce its interest rate risk and increase its credit risk. Since 2009, global bond markets have risen in value by about $17 trillion.
Annaly Capital leverages its portfolio with repurchase agreements. Annaly Capital’s repurchase agreements fell from $54.4 billion to $53.9 billion in 2Q16.
By investing in commercial real estate, Annaly Capital is increasing its returns. At the same time, it’s taking on credit risk.
Annaly Capital ended 2Q16 at 5.3x leverage—flat with the first quarter. It’s still less than the 6.3x ratio it operated with before the taper tantrum.
Annaly Capital reported core earnings of $0.29 per share in 2Q16. Wall Street analysts expected $0.29 per share—earnings were in line with the expectations.
American Capital Agency increased its “at risk” leverage ratio in 1Q16. It funded its balance sheet with ~$41.9 billion in repurchase agreements.
American Capital Agency declared a dividend of $0.60 per share for the quarter. It didn’t change from $0.60 per share declared during the fourth quarter.
American Capital Agency’s book value per share rose from $22.09 in 1Q16 to $22.22 in 2Q16—the first increase in the book value per share in six quarters.
American Capital Agency is one of the largest agency REITs. During 2Q16, its balance sheet fell from $62 billion in assets to $61.4 billion in assets.
The ten-year bond yield fell by 12 basis points to 1.5% for the week ending July 29, 2016. Ginnie Mae TBAs rose by 18 ticks and closed at 104 30/32.
For the week ending July 29, Fannie Mae TBAs ended at 104 4/32. The ten-year bond yield, tradable through TLT, fell by 12 basis points to 1.5%
Mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen over the past month, while mortgage rates have been steady.
Ten-year bond yields influence everything from mortgage rates to corporate debt. Now, they’re the benchmark for long-term US interest rates.
Last week, bond yields fell by 12 basis points as global bonds sold off. Stocks gained on the risk-on trade. Markets still expect the Fed to do nothing next week.
There isn’t much real estate–related economic data this week. There are some important macro reports as well as the jobs report on Friday.
This time around, the Fed made almost no changes to the language characterizing inflation. However, market-based indications of inflation remain low.
The labor market and household spending improved, while business fixed investment has been weak. Overall, it’s more bullish language than June.
Fed Chair Janet Yellen mentioned that the Fed intends to let the labor market run hot for a while in order to try and encourage wage growth.
On July 27, 2016, the Fed ended its FOMC meeting without hiking the federal funds rate. The decision was unanimous with only Esther George dissenting.
Home prices in the Pacific and Mountain states have outperformed prices in the rest of the country over the past two years.