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Annaly Capital Management, Inc. Message Board

  • dufusrightwingnutshorts dufusrightwingnutshorts Jun 22, 2013 10:08 AM Flag

    Yes, MBS Took a Major Dive; However, What Does It Matter If...


    you intend to hold ur MBS until maturity like NLY does (unless prepayments increase---and I doubt many people are rushing out to prepay right now). The yield curve (difference between 2 yr. and 10 yr. Treasuries) is healthy, in fact, the yield curve has gone over 200 basis points on 6/19/2013---the first time in all of 2012 and 2013 that it has had a positive spread of over 200 basis points. For those that are unaware: NLY's profits are essentially determined by the yield curve. In fact, NLY should be buying MBS on a relative heavy level right now because of the drastic price reduction. Here are snapshots of the yield curve since the beginning of 2012 (read: date, 2 yr., 10 yr.):

    1/03/12, .27, 1.97
    3/30/12, .33, 2.23
    6/29/12, .33, 1.67
    9/28/12, .23, 1.65
    12/31/12, .25, 1.78
    3/28/13, .25, 1.87
    6/21/13, .38, 2.52

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    • If you were to refinance your mortgage, the existing mortgage would be prepaid. A replacement MBS would be placed on the market.

      So, as rates rise there's a potential for a rush to refinance, thus number of prepayments would increase in proportion to the number of refinancings..

    • Good point. Things could get ugly along the way but if Nly continues to pay the dividend above 10& I do not worry about it. Only when it suspend that I worry. That is why only invest in large cap Mreits like Nly and Agnc that could withstand the bad environment much better than others. I treat Mreits like a corporate bond and collect the dividend. Just like I said before the longer you collect the more you get and the lower your cost become. As long as they do not close their operation, you will come ahead eventually. This is also actively manage by a team of experts and unlike corporate bonds has no set maturity date. The trade off is you do not know the value you will get by the time you cash it in but you can wait for the right time because it is not callable.

    • Agree with the spread and how it improves earnings, the real concern IMO is the affect long term paper now supported by the fed can affect the book value of those MBS's currently held by NLY. Again, IMO NLY is in a better position since NLY did not engage in additional leverage like AGNC and others did and should with it's recent acquisition retain their book value better than all of the REIT.s being sold today. Unfortunately the long standing trading quote "do not fight the fed" makes it difficult for most investors to understand exactly how NLY operates and run scared with the fear of fed actions. Only those with long term views will benefit owning NLY. Traders may get small gains or losses but long term is more approprate for NLY ownership.

    • Thank you for this important helpful information. The increasingly positive yield curve is an important positive reason to own NLY. Now holders will not only receive a great return on their investment, but also an increasing stock price.

      Sentiment: Strong Buy

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