Looking at the dividend on this stock and other agency REITs one cannot help thinking the stock is priced as the Greek bonds (~50% haircut). Why is this?
A dramatic curve fattening is unlikely – the short end is nailed by the FED probably until the elections and the long end is pretty low and, if Bill Gross to be believed, can move higher. One can see a government-inspired write downs (there is plenty of chatter about it) but, if so, it is likely to affect the agency backed paper too much, right? At the same time mainly non-agency REITs e.g. CIM and MFA are trading at much more reasonable divi… Why would the market price AGNC and similar stocks (CYS, ARR, TWO) for a Greek style default? There are plenty of very savvy folks on this board. Any comments?
Is this not the underlying logic for the rating agencies giving triple A to a bunch of subprime :-)
The main Q is a disparity of yield between apparently safer agency and non-agency REITs (as a group). I thought someone would be able to provide a rational; not just stating that Mr.Market has badly mispriced it. If so, long agency/short non-agency is a great trade.
NLY doesn't hedge to the extent that AGNC does. To see the difference, compare the financial reports of the two and look at their earnings categories (how much earned from mortgage-backed securities and how much from "other" source, i.e., hedging).
I don't know why AGNC's yield is bigger than NLY's, but I haven't looked at anything about NLY other than what people mention here.
Does NLY not hedge and speculate?
AGNC's last reports were pretty clear on how hedging was being done.
and that's why AGNC pays a dividend at the rate of 18.5% annually vs. NLY at 13.5% annually ... greater risk. While investors have no clue as to one component of earnings (at least, not until the company gives its earnings report quarterly), that doesn't turn them away from investing in their stock/company. Most companies operate that way, some to a greater degree than others. That's why there are earnings surprises quite frequently that drives stocks up or down accordingly.
If ya can't take that heat, stay out of the kitchen.
You trade or invest where it's "impossible for us to know or predict."
Vegas will at least provide comfy room and board for throwing your money around. Yes, they have had a good run at currency and derivitives trading hat supplemented core earnings, but such trading is risky, very risky.
I will attempt several simple explanations - pick the one that makes most sense to you
1. It is all about leverage.
2. A Greek bond is probably 9-10x more risky than a US agency obligation (18% vs. 2-3%) However, since MREITs leverage up 9x, the cumulative spread gathered by the MREIT approximates the yield of a Greek bond.
3. You are comparing apples and oranges - Greek debt is priced at 18% because of credit risk; MREITs are priced at 18-20% yields due to leverage, SPO, interest rate risk.
So the conclusion is that none of you gentlemen has an answer to the question which all can agree with. Just like Jim Cramer, you can't figure out why a viable stock would have a dividend this high.