Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

American Capital Agency Corp. (AGNC), Annaly Capital Management, Inc. (NLY): What’s Happening To Agency Trusts?

Page 1 of 2

Mortgage agency REITs have been badly hammered in the past three months. For the hardy breed of investors who can withstand the stomach-churning volatility, the rewards can be huge indeed. REITs in general carry some of the highest dividend yields in the market.

American Capital Agency Corp. (NASDAQ:AGNC)

American Capital Agency Corp. (NASDAQ:AGNC) is an mREIT that invests exclusively in agency-backed mortgage securities. This mREIT sports an impressive 18.5% dividend yield. American Capital Agency Corp. (NASDAQ:AGNC) finances its investments primarily through short-term borrowings. This makes the firm vulnerable to interest rate fluctuations. Whenever short-term rates rise faster than long-term rates, mREITs suffer from squeezed earnings.

It is this fear that has sent American Capital’s stock tumbling from its April 26, 2013, $33 price to the current $22 trading range, in a short span of just five months.

American Capital Agency Corp. (NASDAQ:AGNC) has not been alone in the recent drubbing. Annaly Capital Management, Inc. (NYSE:NLY), CYS Investments Inc (NYSE:CYS), and ARMOUR Residential REIT, Inc. (NYSE:ARR) have all fared poorly during the summer months.

What’s happening to agency trusts? 
While all players have been hurt recently, agency-focused trusts such as American Capital Agency Corp. (NASDAQ:AGNC) were the clear losers. There were a few things in the mix that worked in tandem to add to the mREIT’s growing pains. One of these is the 10-year Treasury yield, which hit 2.90% recently, very close to the two-year high.

Another reason is most investors expected the Fed to start cutting down on its $85 billion-a-month asset purchase program that is part of its stimulus package. Investors were spot-on this one since the Federal Open Market Committee released the minutes for its July meeting last week that revealed it was comfortable with a tapering timeline. Although it failed to issue a definitive timeline of when the monetary tightening would commence.

The tapering timeline case is further exacerbated by the growing fears that Larry Summers is the hot favorite to replace the Fed’s chairman Ben Bernanke, reportedly trouncing his rival and other thought-to-be contender Janet Yellen. Mr. Summers is seen as a strong proponent of the Fed cuts and could likely speed up the process. Many investors would have preferred Yellen, since she comes across as being more moderate on the cuts.

American Capital Agency MBS portfolio still weak 
In a bid to hedge against interest rate fluctuations and preserve book value over the short-term, American Capital Agency Corp. (NASDAQ:AGNC) has been employing a business strategy that favors acquiring or holding fewer price-sensitive mortgage-backed securities, or MBS, which in turn generate lower yields. As a result, the firm has been increasing its 15-year MBS holdings while offloading its 30-year MBS holdings. Fifteen-year MBS carry a lower volatility than their 30-year counterparts. On the flip side, these investment vehicles generate lower yields.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!