2024-04-19 23:05:49 ET
Summary
- Annaly's stock has declined by 43% since I became bearish, with a 20% net loss after dividends.
- Mortgage REITs like Annaly pay double-digit dividend yields, but their book values have declined due to rising mortgage rates.
- Annaly's exposure to the mortgage market includes agency mortgage-backed securities, MSR assets, and residential credit.
- Since Annaly hedges Treasury rates, its most significant risk is a rise in mortgage credit risk.
- Mortgage delinquency rates are low today but rising and could continue to increase with low home sales.
Two years ago, I focused on how the rise in mortgage rates would harm the value of mortgage REITs. My bearish outlook on the giant Annaly ( NLY ) was established at the beginning of the year. Mortgage rates had just begun to rise then, and I believe they'd increase significantly due to prolonged inflation. As that occurred, I expected NLY and its peers to lose value as mortgage-backed securities declined, exacerbating book value losses due to its high leverage....
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For further details see:
Annaly: Improved Outlook As Mortgage Spreads Decline (Rating Upgrade)