For a number of weeks now the 10 yr Tr has been out of step with global govt bond rates - e.g. the 10 yr Tr has been about 15.5% more expensive than the 10 yr French govt notes. U.S. Govt debt more risky than French Govt debt? Probably not. This suggests that the1- yr Tr will stabilize for the next few months at the current rates and subsequently increase in a more measured manner as the Fed gradually tappers off on QE.
For NLY, BV must decrease another 10% for the current stock price to equal BV. The question for NLY investors is - even if BV declines further (which it probably will) - do you think that the market will find dividends (even if divs are cut 25% to a yield of 9-10%) attractive enough to support a price of $12/share?. Note (i) Except for Oct 2005-Feb 2006, NLY has not traded at this past week's low since April 2001; (ii) TTM Div Yield in Feb 2006 was 6%. Moreover, the increasing yield curve portends of at least relatively stable absolute dividend even with shrinking book of MBS (assuming, contrary to statements made in the conference call, that management is not saving dry powder for opportunistic purchases). One must also factor in stock buy back's effect on stabilizing div yield and BV/share.
I intend to relax, collect my dividend and watch for changes in management (that will be more significant to medium-long term value than interest rate fluctuations). Just my opinion - which is often wrong - but I am betting on it.