What You Must Watch When American Capital Agency Corp. (AGNC) Reports Earnings

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Prepayment rising
While interest rate risk is obviously front and center for anyone investing in fixed-income instruments, when buying up agency-backed MBS paper — as American Capital Agency does — the risk that borrowers pay back their loans sooner than expected is another key risk. In particular, when rates fall, borrowers tend to do things like refinance in order to take advantage of cheaper borrowing.

American Capital Agency’s management team has been fixated on minimizing the portfolio’s exposure to rising prepayment rates. Investors will want to look for signs in the fourth-quarter results that this positioning is paying off.

The article What You Must Watch When American Capital Agency Reports Earnings originally appeared on Fool.com and is written by Matt Koppenheffer.

Matt Koppenheffer has no position in any stocks mentioned. The Motley Fool owns shares of Annaly Capital Management (NYSE:NLY).

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