I think, the market is expecting things to be STABLE starting coming earnings season. So that bit of good news is already BAKED into the price. What if the good news does NOT happen. The way interest rates are being whip-sawed, it is difficult for any MREIT CEO. One thing is clear, whatever happens - further interest rate rise or a fall - will happen VERY QUICKLY. This environment is just causing MREITS to WASTE their resources on HEDGING. BAD BAD environment the FED has created for MREITS.
It bounced off the previous low set in 2012, but I think its new range is 3.5 to 4.00 for the next 12 months if interest rates stays here. Let' see.
Going by history - they change dividend only about once in 12 months. So we are stuck with this dividend for next 12 months.
Dividend has been cut. So don't get too excited about this price drop. It is probably now sitting very close to the high-end of its range for the next 12 months.
25 million shares short , avg daily vol = 12 mil. It will take 2 - 5 days to cover.
a) What really matters ( for MREITS ) is not the 10-year, but the price of the MBS. Then MBS prices DID NOT BUDGE.
b) Why MBS prices did not budge then ? Because the ECONOMY was doing bad, Europe was in turmoil - so no one really THOUGHT that that the ECONOMY could sustain a 3.6% 10yr - which turned out to be true.
c)This UPTREND in interest rates, the MARKET ( not you or I - we are inconsequential, I believe 2.75% is tops, doesn't matter.) BELIEVES in and IT thinks will continue till 3.25% - 3.5% and much MORE IMPORTANTLY - STAY THERE. MBS prices have also taken note AND have come down hurting MREITs.
You can ONLY hedge UNCERTAINTY. You CANNOT hedge CERTAINTY. If the market determines that rates are going to certain limit, you CANNOT hedge that - or the hedge will cost you a lot. In todays' age of Social Media, market has come to some kind of conclusion what the 10-yr will be for the next 2-3 years. Will a insurance company insure a DYING patient on deathbed.
I don't think in this environment the shorts will cover SO FAR ahead - I mean there are still 3 weeks to go.
Most important question to ask is - hedged against WHAT ? A 3% rate, 3.5%, 4% ? The devil is always in the details.
What consequence is it of for an Chairman/CEO making probably a million every months to buy $1 milIion worth of stock. All this 10K shares purchased etc. - those are useless. What % of co-CIO's salary did it take to buy them ? For the most part - ignore insider buying/selling.
WITHOUT any hedging, with 8x leverage, MBS prices have to drop by 12% for BV to go to zero. So that is a long shot. MBS prices have dropped 4% till now and it can easily drop another 5-6%. In that case, BV would drop another 30-40%. But these companies obviously have learned their lessons and are at least PARTIALLY protected against that. So short answer - NO.
Is the selling almost done in MREIT or S&P sell-off could cause MREITs to go down even more.