MTGE's current stock price assumes 2 additional consecutive quarters of 15% BV declines, not including an 18% annual dividend
BV was $24.25 at 3/31. A draconian assumption is for a 15% loss this quarter so that BV is 20.61 at 6/30. At the current price the market is assuming another 15% decline in 3Q (or thereafter) so that BV goes down to around $17.52. It's just a very unrealistic assumption that prices in much wider mortgage spreads on top of much higher interest rates that the company's large hedge portfolio somehow doesn't hedge well (all of which is unlikely as extension risk in most mortgages has already played out and hedges should be moving closely with MBS prices from here).
Gary Kain's presentation 2 weeks ago discussed a modest duration gap at AGNC plus little incremental duration gap extension should rates rise another 100 bps or even 200 bps. And that assumed no dynamic hedging by the company. I think we should assume MTGE is managed in a similar manner.
That also doesn't include a dividend of $0.80 per quarter, or maybe somewhat less but probably not dramatically so.
At this stock price management should be liquidating its least attractive assets and buying back stock aggressively. Doing so is like buying the portfolio at a large discount. It is also very accretive to BV.
These guys just issued 60+% of its mkt cap in new shares at $25.40 (net proceeds) in Feb. Buying them back at $17.50 is a no brainer.
Anxiously waiting for the earnings report now to hopefully stop the insanity.
OldSchool, this was posted on an SA article today about how much MBS has fallen.
I'm not sure how much lag there was between when the article was submitted and then posted, so I don't know how these numbers fair in relation to todays close.
Never the less, they are pretty dam scarey once you throw in leverage.
7.4x Leverage with TBA's.
Going into Q2, 66% of MTGE's 30 year was 3.0% and 3.5% coupon.
Specific pool Payups fell again as well.
Hopefully their hedges did good.
But I don' think 15% is Draconian for Q2.
On the 3.5's, (-5.6% x 7.4 leverage) is a big drop.
3.0% coupon 30 year fixed Agency MBS have fallen 7.3%
3.5% coupon 30 year fixed Agency MBS have fallen 5.6%
4.0% coupon 30 year fixed Agency MBS have fallen 3.7%
4.5% coupon 30 year fixed Agency MBS have fallen 2.7%
2.5% coupon 15 year fixed Agency MBS have fallen 4.6%
3.0% coupon 15 year fixed Agency MBS have fallen 3.2%
How about the hedges? Dynamic hedging, asset rotation, duration gap mgt, etc.? AGNC's BV was down 9% thru 6/7 with comments from mgt that the duration gap was 0.7 yrs. Since then there was some basis widening and a back-up in rates but it's hard to see much more damage at MTGE than 10% or so as non agencies did better. 15% is possible but the stock is 15% below that even,