Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC), And mREIT Issues

American Capital Agency Corp. (NASDAQ:AGNC) is one of the most favored Agency mortgage REITs due to its management’s ability to select superior securities. This is exactly why it was able to maintain its quarterly dividend rate of $1.25 per share throughout the prior year. The company reported a 27 bps sequential increase in its asset yields during the fourth quarter of the prior year, while the net interest rate spread increased 21 bps over the same time period. Besides, the company reported one of the lowest prepayment speeds of 10% since most of the securities selected by American Capital Agency Corp. (NASDAQ:AGNC) are reported to have high prepayment protection attributes. Therefore, you can expect the company to continue its current dividend rate.

CYS Investments Inc (NYSE:CYS) also invests exclusively in Agency residential mortgage backed securities. It was forced to cut 36% to $0.32 per share during the prior year alone. The company disclosed its first quarter performance better than expected. The EPS came in at $0.32 per share, up $0.02 from the consensus mean expectation. Besides, the company reported a 2 bps increase in its net interest rate spread during the most recent quarter. This increase was driven by 5 bps decline in the cost of its borrowings.

Conclusion

I believe the strength in the results of CYS Investments Inc (NYSE:CYS) will also be seen at American Capital Agency Corp. (NASDAQ:AGNC) and Annaly Capital Management, Inc. (NYSE:NLY). This is because throughout the first quarter of the current year, mortgage rates remained relatively higher, while refinancing slowed down. This will cause American Capital Agency Corp. (NASDAQ:AGNC) and Annaly Capital Management, Inc. (NYSE:NLY) to report relatively flat net interest rate margins, if not an increase in them. However, going forward, the possible extension of Fed stimulus might reverse the situation out of favor of Agency mortgage REITs.

The article Headwinds for the mREITs originally appeared on Fool.com and is written by Adnan Khan.

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