What Happens to AGNC when Interest Start Climbing ???
Which interest rate?
It matters - a lot. If you're talking about 'housing interest rates' you need to have a look at the 10year as a measure. Short term interest rates would cause spread compression, but that is not what I'm seeing so far in FY13.
If the 10-year moves upward, and the short term interest rates stay where they are, or rise at lower pace than the 10-year, spread income will increase. This will have two effects:
1) The company will be more profitable
2) The company's book value will go down
These two effects are inverses of each other.
The market seems to favor REITs a little more when they are profitable versus a higher book value. This can be seen in other REITs (as well as this one), as a discount to book value today. When the day comes that spreads increase, the market will likely trade the shares at a premium rather than a discount.