AGNC Investment and Annaly Capital Management provided preliminary third-quarter results this week. Book value declined and leverage increased on a sequential basis.
A higher-than-expected inflation reading for August led to volatility in interest rates this week, hurting the value of agency MBS. Still, the CEO of AGNC, a real estate investment trust focused on agency MBS, expects that concerns tied to the Fed will diminish by the end of the year.
The Federal Reserve giveth and taketh away in the agency MBS market. And now that the central bank’s investment activity is significantly curtailed, investors are seeing some opportunities in the sector.
The two largest REITs in terms of holdings of agency MBS noted extreme volatility in the second quarter while also suggesting that market dynamics are set to improve.
It could be years before the Fed sells any of its holdings of agency MBS, according to John Williams, president and CEO of the Federal Reserve Bank of New York.
The performance of MBS and ABS isn’t expected to be directly impacted by the fallout of Russia’s invasion of Ukraine in the near term; prepayment rates on agency MBS declined in February.
The number of loans 30-59 days delinquent in agency MBS increased during the second half of 2021. Late payments increased on FHA mortgages along with GSE loans. (Includes data chart.)
Annaly Capital Management’s net income declined by nearly 20% from the third to the fourth quarter and AGNC Investment took a loss as agency MBS values fluctuated due to actions by the Federal Reserve.
Margin requirements for trading GSE MBS are on the way; the Fed will end its stimulus-related purchases of agency MBS in March; JPM readies its largest jumbo MBS since 2016.