Capstead Mortgage Corp

By investing in commercial real estate, Annaly Capital is increasing its returns. At the same time, it’s taking on credit risk.

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’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.

Annaly Capital’s (NLY) book value per share fell from $11.73 in the fourth quarter to $11.61 in the first quarter.

American Capital Agency’s (AGNC) book value per share fell from $22.59 in the fourth quarter of 2015 to $22.09 in the first quarter. Why?

Annaly Capital’s (NLY) book value per share fell from $11.99 in the third quarter to $11.73 in the fourth quarter.

During 3Q15, American Capital Agency’s balance sheet fell from $62.9 billion to $62.2 billion in assets. At the end of the quarter, 30-year fixed-rate mortgages accounted for 66% of the portfolio.

The benchmark iShares Dow Jones US Real Estate ETF (IYR) comprises 114 stocks. We can divide the ETF by market capitalization.

Major stocks in the top five REIT subgroups that saw positive returns over the week ended July 17.

American Capital Agency tends to stick to fixed-rate MBS. This makes the company similar to Annaly Capital Management (NLY).

Overall, we’ve seen the 10-year bond yield pick up 41 basis points over the past two weeks. US data was on the strong side, especially the JOLTS report.

The Fannie Mae 3.5% TBA started the week at 105 22/32 and gave up 22 ticks to close at 105. The ten-year yield increased 32 basis points.

Initial jobless claims are one of the few labor market indicators released every week. Unemployment is a profound economic growth driver.

As one of the largest agency REITs, American Capital Agency (AGNC) invests primarily in mortgage-backed securities that are guaranteed by the US government.

American Capital Agency’s (AGNC) book value per share increased from $25.54 in the third quarter to $25.74 in the fourth quarter.

The Fannie Mae 3.5% TBA started the week at 105 2/32 and picked up 20 ticks to close at 105 22/32. Bonds rallied 16 basis points.

Bonds yields have been influenced heavily by European rates since last summer, when rates globally began to fall as the markets speculated about further QE.

Yesterday, the Federal Reserve ended its September FOMC meeting. It changed its language regarding interest rate normalization going forward.

The Fannie Mae 3.5% TBA started the week at 105 1/32 and picked up 7 ticks to close at 105 7/32. Bonds rallied 4 basis points.

The unemployment rate is probably the most visible and important economic indicator in the United States. It fell 20 basis points to 5.6% in December.

Ginnie Mae TBAs rallied 9 ticks to close at 105 20/32. However, they underperformed Fannie Mae TBAs, which rallied 17 ticks.

After Obama announced the new insurance guidelines, the mortgage-backed securities market, especially the TBA market, reacted violently.

It looks like the MBA refinance index is still flat on its back. So while we could see a pickup in refis, so far it hasn’t materialized.

The Fed’s decision to reinvest QE assets in the markets affects REITs. It keeps a bid under TBAs, and it supports MBS values in general.

Leading indicators of the the labor market are flashing bright green. These data indicate the job market is in a transition period and about to accelerate.

The ten-year bond sold off, with yields increasing from 2.16% to 2.25%. Ginnie Mae TBAs rallied to close at 104-19.

Ginnie Mae TBAs are where government loans go, such as the federal housing administration and veterans affairs loans.

Yesterday, the Federal Reserve ended its September FOMC meeting. It changed its language regarding interest rate normalization going forward.

Ginnie Mae and the to-be-announced (or TBA) market The Fannie Mae to-be-announced (or TBA) market represents the usual conforming loan, the plain Fannie Mae 30-year mortgage. Meanwhile, Ginnie Mae TBAs are where government loans go, such as the federal housing administration (or FHA) and veterans affairs (or VA) loans. The biggest difference between a Fannie […]

The unemployment rate has been falling, so why doesn’t the average citizen feel better about the economy? The reason is the labor force participation rate remained unchanged at 62.8% in November.

The ten-year bond had a big sell-off, with yields decreasing from 2.16% to 2.34%. Ginnie Mae TBAs fell as well, dropping from 104 19/32 to 104 7/32.

The Fannie Mae 3.5% TBA started the week at 103 28/32 and gave up 14 ticks to close at 103 14/32.

If the payroll numbers on Friday come in better than expected, a sell-off in bonds can raise interest rates further as investors bet on recovery and the the timing of “normalization,” the Fed’s term for raising rates off the zero bound.

As a general rule, a lack of volatility is good for mortgage REITs, which hedge some interest rate risk. Increasing volatility in interest rates increases the cost of hedging.

Big agency REITs like Annaly (NLY) and American Capital Agency (AGNC) took the chance to deleverage their balance sheets after the warning in the spring of 2013.

The “elephant in the room” at the Fed is that rates need to return to more normal historical levels at some point. This will be in the context of a massive Fed balance sheet. This creates issues on many different levels.

Ginnie Mae and the to-be-announced market The Fannie Mae to-be-announced (or TBA) market represents the usual conforming loan—the plain Fannie Mae 30-year mortgage. Meanwhile, Ginnie Mae TBAs are where government loans go—such as the federal housing administration (or FHA) and veterans affairs (or VA) loans. The biggest difference between a Fannie Mae mortgage-backed security (or […]

Fannie Mae and the to-be-announced market When the Federal Reserve talks about buying mortgage-backed securities (or MBS), it’s referring to the to-be-announced (or TBA) market. The TBA market allows loan originators to take individual loans and turn them into a homogeneous product that you can trade. TBAs settle once a month. Fannie Mae loans go into Fannie […]

The increase in rates has basically put prepayment worries on the back burner for REITs. The lack of a reaction in the refinance index on the back of a drop in rates could mean we’re finally seeing prepayment burnout. This would be good news for REITs.

These days, the Fed isn’t all that concerned about inflation raging out of control. Indeed, it would like to see higher inflation.

The ten-year bond rallied, with yields increasing from 2.34% to 2.3%. Ginnie Mae TBAs followed the trend, rising from 104 12/32 to 104 15/32.

The Fannie Mae 3.5% TBA started the week at 103 1/4 and picked up nine ticks to close at 103 17/32. Market participants may also be forecasting less volatility in interest rates.

Annaly was less leveraged than its peer group, with a debt-to-equity ratio of 5.4:1. At the end of Q213, the leverage ratio was 6.2:1, so Annaly delevered pretty aggressively.

How do agency REITs pay such high dividends while investing in securities that don’t pay much? Mortgage REITs like Annaly (NLY), American Capital Agency (AGNC), MFA Financial (MFA), Capstead (CMO), and Hatteras (HTS) tend to have high dividend yield. Yet agency mortgage-backed securities don’t pay low-double-digit returns. To achieve these sorts of returns, REITs—particularly agency […]

The ten-year bond sold off, with yields increasing from 2.27% to 2.34%. Ginnie Mae TBAs bucked the trend, rising from 104 20/32 to 104 25/32.

Fannie Mae MBS fell slightly as the bond market sold off as investors added risk. The Fannie Mae 3.5% TBA started the week at 103 16/32 and picked up an eighth to close at 103 12/32.

American Capital Agency is one of the biggest REITs in the U.S. by market capitalization. Annaly Capital Management is the other. As such, AGNC is one of the biggest ultimate lenders in the mortgage market.

The ten-year bond sold off, with yields increasing from 2.19% to 2.27%. Ginnie Mae TBAs followed, dropping from 104 23/32 to 104 20/32.

Fannie Mae MBS fell slightly as the bond market sold off as investors added risk. The Fannie Mae 3.5% TBA started the week at 103 24/32 and lost a quarter to close at 103 16/32.

Mortgage REIT investors have finally gotten a taste of what interest rate risk looks like over the past year. For most of the past 30 years, bonds have been a one-way bet.

This also means a REIT will experience a volatile dividend. Most corporations loathe cutting their dividend because of the message it sends to Wall Street, so volatile dividends are generally rare. For REITs, they’re a fact of life.

CYS Investments (CYS) is a diversified agency mortgage REIT that invests all across the agency mortgage-backed security (or MBS) space.

Ginnie Mae and the to-be-announced market The Fannie Mae to-be-announced (or TBA) market represents the usual conforming loan—the plain Fannie Mae 30-year mortgage. Meanwhile, Ginnie Mae TBAs are where government loans go—such as the federal housing administration (or FHA) and veterans affairs (or VA) loans. The biggest difference between a Fannie Mae mortgage-backed security (or […]

Fannie Mae and the to-be-announced market When the Federal Reserve talks about buying mortgage-backed securities (or MBS), it’s referring to the to-be-announced (or TBA) market. The TBA market allows loan originators to take individual loans and turn them into a homogeneous product that you can trade. TBAs settle once a month. Fannie Mae loans go into Fannie […]

The ten-year bond influences everything from mortgage rates to corporate debt. It’s now the benchmark for long-term U.S. interest rates. Note that old-timers might remember when the 30-year bond was the benchmark.

REITs like Annaly, American Capital Agency, MFA Financial, Hatteras, and Capstead could become vulnerable if the Fed dumps its portfolio of MBS onto the market.

The unemployment rate is probably the most visible and important economic indicator in the U.S. People’s perception of the health of the economy is driven first and foremost by unemployment.

The main action driving the to-be-announced market seems to be from Washington, between the Fed purchases and the government’s policies to drive origination.

The Mortgage Bankers Association’s (or MBA) refinance index fell 0.3% (from 1,297.5 to 1,293) even as the bond market rallied 4 basis points.

The front-month Ginnie Mae TBAs were roughly flat as bonds rallied four basis points. Ginnie Mae TBAs began the week at 105 28/32 and fell to 105 27/32.

Fannie Mae MBS sold off a bit on a weak bond market. The Fannie Mae 4% TBA started the week at 104 29/32 and lost about 5 ticks to close at 105 3/32.

Yesterday, the Federal Reserve ended its September Federal Open Market Committee meeting and decided to continue to reduce asset purchases. It will reduce purchases of Treasuries by $5 billion a month.

The front-month Ginnie Mae TBAs were bid up as bonds rallied eight basis points. Ginnie Mae TBAs began the week at 106 8/32 and fell to 105 26/32. The underlying bond market sold off 15 basis points.

The unemployment rate is the most important data point out there right now, and it has been falling. So why doesn’t the economy feel better to the average citizen?

The front-month Ginnie Mae TBAs were bid up as bonds rallied eight basis points. Ginnie Mae TBAs began the week at 106 21/32 and ended up in the same place. The underlying bond market sold off 12 basis points.

There’s an old Wall Street saw that says you should buy the rumor, sell the fact. Essentially, this means that the market prices in an event before it actually happens.

Fannie Mae MBS rallied a bit on a strong bond market. The Fannie Mae 4% TBA started the week at 105 26/32 and picked up about an eighth to close at 105 30/32.

The biggest difference between a Fannie Mae mortgage-backed securities (or MBS) and a Ginnie Mae MBS is that Ginnie’s have an explicit guarantee from the federal government. Fannies don’t have a guarantee. However, there’s a “wink wink, nudge nudge” guarantee.

Last week didn’t have a lot of stuff that could move the bond market, but bonds rallied anyway. Weakness in the Eurozone pushed yields lower and U.S. Treasuries followed along. Finally, tensions in Ukraine also caused a flight to quality which pushed yields lower.

REITs will offer volatile dividends. Most corporations loathe cutting their dividend because of the message it sends to Wall Street. So volatile dividends are generally rare. But for REITs, they’re a fact of life.

MFA Financial reported net income of $0.20 a share. This was higher than the Wall Street estimate of $0.19 per share. Book value per share increased 2.1%, to $8.37 per share.

On the company’s conference call to analysts and investors, Annaly CEO Wellington Denahan addressed the current interest rate environment and where she saw the company heading in the future.

The front-month Ginnie Mae TBAs were bid up as bonds rallied ten basis points. Ginnie Mae TBAs began the week at 106 2/32 and picked up 3 ticks to close at 105 31/32.

We’ll see where mortgage rates have been, and we’ll go over the weekly economic data and earnings announcements. Then we’ll look forward to what’s coming up the following week.

Fannie Mae MBS rallied a bit on a strong bond market. The Fannie Mae 4% TBA started the week at 105 17/32 and ended up at the same place.

Most corporations loathe cutting their dividend because of the message it sends to Wall Street. So volatile dividends are generally rare. But for REITs, they’re a fact of life.

American Capital Agency (AGNC) is a diversified agency mortgage REIT that invests all across the agency mortgage-backed security (MBS) space.

The front-month Ginnie Mae TBAs were bid up as bonds rallied ten basis points. Ginnie Mae TBAs began the week at 106 18/32 and lost up just about 7 ticks to close at 106 11/32.

Mortgage REIT investors have finally received a taste of what interest rate risk looks like over the past year. For most of the past 30 years, bonds have been a one-way bet.

Most corporations loathe cutting their dividend because of the message it sends to Wall Street, so volatile dividends are generally rare. For REITs, they’re a fact of life.

Because there’s no risk of principal loss—not to be confused with mark-to-market issues—the rate of return for mortgage-backed securities is generally low.

The front-month Ginnie Mae TBAs were bid up as bonds rallied ten basis points. Ginnie Mae TBAs began the week at 106 1/32 and lost up just about 7/16 to close at 106 15/32.

Fannie Mae MBS rallied a bit on a strong bond market. The Fannie Mae 4% TBA started the week at 105 13/32 and ended up picking up about a quarter of a point.

Fannie Mae MBS sold off a bit. The Fannie Mae 4% TBA started the week at 106 and ended up losing about half a point.

The bond market broke from its recent pattern of ignoring bond-bearish data and rallying on bond-bullish data. For the most part, the economic data last week was weaker than expected.

The front-month Ginnie Mae TBAs were sold off as bonds tanked on some strong economic data. Ginnie Mae TBAs began the week at 106 23/32 and lost up just about 5/8 to close at 106 4/32.

The main action driving TBAs specifically seems to be out of Washington, between the Fed purchases and the government’s policies to drive origination.

Given the shaky state of most household balance sheets, the Fed would really like to create inflation, provided it results in increased wages.

The front-month Ginnie Mae TBAs were unchanged as bonds flatlined on the lack of economic data. Ginnie Mae TBAs began and finished the week at 106 5/32.

Fannie Mae MBS followed the bond market higher. Liquidity has been downright terrible in the TBAs lately. The Fannie Mae 4% TBA started the week at 105 10/32 and ended up dropping 1/16.

The front-month Ginnie Mae TBAs worked their way higher as bonds rallied on weak economic data. Ginnie Mae TBAs began and finished the week at 106 17/32.

Interestingly, the ADP employment report provides a very tight correlation with the BLS’s revised payroll numbers. The BLS revises its payroll data twice, and the ADP number comes out before the first estimate.

Inflation isn’t the Fed’s biggest concern at the moment. If anything, it’s worried that inflation is too low.

We may see the occasional cyclical bond bull markets in the context of a secular bear market, but the overall trend is toward increasing interest rates.

The front-month Ginnie Mae TBA drifted went nowhere while bonds sold off slightly. After starting the week at 105 27/32, they finished more or less where they started

Annaly reported core earnings of $0.23 a share, which was lower than the Street estimate of $0.27 per share. Book value per share increased 1.4%, to $12.30 per share.

When the Fed hinted at tapering at the June 2013 FOMC meeting, rates began to rise and REITs were clobbered. The hardest-hit were agency REITs.

The front-month Ginnie Mae TBA drifted higher as bonds rallied. After starting the week at 105 17/32, they added about 5/8 of a point to close at 105 5/32.

Bonds followed through on last week’s rally with another rally. After closing out the prior week at 2.66%, interest rates moved lower in response to the weak first quarter GDP report.

American Capital Agency is a diversified agency mortgage REIT that invests all across the agency mortgage-backed security space.