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American Capital Agency Corp. Message Board

  • stock_watch_900 stock_watch_900 Jun 24, 2013 12:03 PM Flag

    Wunderluch: AGNC oversold, but going lower

    How much equity will be left at the end of the day? My guess is not much!!!

    We are lowering most of our price targets on mortgage REITs under coverage. The execution of monetary policy through large scale asset purchases by the Federal Reserve Bank of New York (FRBNY) dominated the TBA market and drove down mortgage rates. Because market participants are pricing in the winding down of that program, TBA bids are sharply lower and mortgage rates are being driven sharply higher….

    With a positive slope to the yield curve and continued home price appreciation to drive portfolio turnover, mortgage REITs are capable of generating robust dividends. The question is, how much equity will be left at the end of the day, given the declines in the fair market value of assets, offset by hedges. Historically, purchasing mortgage REITs at a discount to book when the curve is positively sloped has proven to outperform the broader market. We believe the stocks are oversold, but the pressure on TBA prices continues unabated, and we don’t know when the FRBNY will step up and lead price discovery. In the absence of a firm bid from the Desk, we think the market will continue to drive rates higher.

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