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American Capital Agency Corp. Message Board

  • hoopheaven2000 hoopheaven2000 Jul 20, 2008 9:44 AM Flag

    Interest Rate Risk

    I'm new to this stock. I haven't seen much discussion of interest rate risk for AGNC. Seems like their business model is to get their money on the short term market and invest in agency backed mortgages which are longer term. Seems to me that if short term rates rise they will have increased interest expense but they will still have the same morgage income. I see in the prospectus that they may hedge this risk, but I see the risk of higher short term rates as being much larger than the nonpayment risk on their investments. I'd appreciate any insights.

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    • hoop -

      you are correct - there is hedging as soon as the agnecy rmbs is purchased during ramp up period, and the other risk is the borrower. But with fresh orgianations valuation have already come down and loan covenants, ratios and credit are now improved for the lenders.

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