Wider spreads. Book value is near $24, but spreads are going wider and that means margins improve the longer we stay here in agency mbs pricing. The fed is not going anywhere for a long time. Interest rates factoring in a 50 bp move in short rates in 2016. So what. Even that could change the other way if the us economy doesn't improve as quick, not to mention higher rates on the long side hurt economic recovery. Look what the fed has to do to keep the economy afloat! Buying 85b a month of treasury and mbs!! And people are worried about rising rates with all that going on and the fed trying to push even rates lower???
You're right, it doesn't. Just helps reinvestment spreads, but with MTGE's agency MBS CPRs of 6% that is not a huge benefit. Low CPRs, however, does mean lower premium amortization, which does help earnings. However, importantly MTGE used the SPO proceeds in mid-Feb to lock in wider spreads via TBAs and lower repo costs recently on the overall book is also helpful for earnings.
I agree. You are getting 15.25% given the sustainable $3.60 annual dividend. BV performance should be much better this quarter as treasuries are now moving in line with MBS and the hedge ratio here is pretty high (zero duration gap currently), while pay-ups on prepay protected securities are already low (little downside), and these represent a smaller piece of the portfolio given the rapid growth in TBA mortgages (now 40% of the agency book).
TBAs have much greater spreads (given the negative initial funding costs) than specified pools or spot MBS, which, combined with lower repo rates since the beginning of the year and greater operating leverage as MTGE is 60%+ bigger now, should drive higher spread income and thus dividends. UTI of 45 cents is enough for the company to at least maintain the 90 cents quarterly dividend.
The dividend provides significant downside protection over time. You are getting the stock at $22.70 if you factor in the coming dividend (mid-June ex-date). Not bad.