Mortgage REITs in the cellar

Worries that the Fed will ease up on quantitative easing are shellacking mortgage REITs. So far, the stocks have plunged 21% since the end of April -- and there may be more where that's coming from.
AUG 20, 2013
Real estate investment trusts that buy mortgage debt slumped after a better-than-forecast employment report stoked speculation the Federal Reserve will begin to reduce the size of its asset purchases. A Bloomberg index of shares in the REITs tumbled 3.9 percent at the end of trading day on Friday, the biggest drop since October 2011. Annaly Capital Management Inc. (NLY), the largest of the companies, and American Capital Agency Corp. (AGNC), the second biggest, each plunged more than 5 percent. Firms that buy mortgage bonds and loans have been roiled by speculation the Fed will reduce its $85 billion of monthly debt buying as the economy shows signs of strengthening, losing 21 percent since the end of April including reinvested dividends. Data released on Friday showed the U.S. added 195,000 jobs in June, compared with a median forecast of 165,000 in a Bloomberg News survey. “The number that came out is consistent with a September taper” in the central bank's bond buying, saidShyam Rajan, an interest-rate strategist at Bank of America Merrill Lynch in New York, one of the 21 primary dealers that trade with the Fed. Government-backed mortgage securities posted their biggest quarterly losses since 1994 in the three-month period ended in June, declining 1.92 percent, according to Bank of America Merrill Lynch index data. Some mortgage REITs, such as American Capital Agency, focus their investing on that debt, using borrowed money to amplify potential returns. Asset Purchases Other U.S. home-loan bonds owned by certain mortgage REITs have also slumped as the potential slowing of the central bank's stimulus agitates credit markets, losing as much as 22 percent in June to trade at the lowest prices of the year, according to data from Bank of America and Barclays Plc. Fed Chairman Ben S. Bernanke said last month that policy makers may “moderate” their asset-purchase program later this year and end it in mid-2014 if economic growth meets their forecasts. Yields on Fannie Mae's current-coupon 30-year securities rose 0.3 percentage points Friday to 3.69 percent, according to data compiled by Bloomberg. That's the highest since August 2011, and up from 2.23 percent on Dec. 31. Government-backed mortgage bonds had rallied last week to pare losses since April. A measure of spreads on the Fannie Mae current coupon debt, or bonds trading closest to face value, rose today to the highest since April 2012. Relative yields on the securities climbed about 0.1 percentage point to 1.52 percentage points higher than an average of five- and 10-year Treasury rates. --Bloomberg News--

Latest News

Advisor moves: Atlas tops $1B as Wells Fargo, UBS add bank veterans
Advisor moves: Atlas tops $1B as Wells Fargo, UBS add bank veterans

Wells Fargo adds two bank-channel recruits, UBS lands a JPMorgan Chase veteran, and a multi-family office lifts Atlas past $1B

Advisor mom’s son used her password to log into clients’ accounts, sell deal with conflicts, according to Washington state
Advisor mom’s son used her password to log into clients’ accounts, sell deal with conflicts, according to Washington state

“The state comes down on you in years when you make 40% returns for clients,” said Bill Swayne, the advisor and son of Candace Swayne.

Osaic in talks with Anthropic as AI reshapes advisor workforce
Osaic in talks with Anthropic as AI reshapes advisor workforce

The Independent broker-dealer giant has had “active conversations” with the Claude maker, which is days away from its expected IPO

The retirement milestone advisors aren't tracking
The retirement milestone advisors aren't tracking

For Gen X clients entering life after work, answering the financial question isn't enough to solve the entire retirement equation.

Wealthtech firms target stock pay, pensions and heirs for advisors
Wealthtech firms target stock pay, pensions and heirs for advisors

Tools from Grantd, Income Lab and Healthspan Wealth aim to keep RIAs involved in clients’ biggest money decisions

SPONSORED Best Practices for Engaging Women Around Alternatives

Growing wealth, evolving priorities, and untapped opportunities are reshaping how women approach long-term investing.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.