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’s pandemic-driven asset-buying spree altered the composition of assets and liabilities, a change that impacts balance sheet reduction.
Investors that once focused on lower tranches of non-agency MBS are shifting up in credit, seeing just as strong returns from AAA-rated tranches with fewer risks. Investors in agency MBS are also changing strategies as interest rates rise.
Falling market values for Fannie/Freddie pass-throughs played a big part in the decline in bank investment in residential MBS during the second quarter. Holdings of Ginnie MBS and non-agency securities were up. (Includes two data charts.)
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.
With FHA loan performance relatively strong and the spike in interest rates this year, early buyout activity from Ginnie MBS is limited. Overall, removals are slowing thanks to elevated interest rates. (Includes data chart.)
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