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Investments

mREITs post mixed results amid government gridlock

Weak MBS sell-off contributes to underperformance

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As the market awaits an agreement on Capitol Hill over fiscal issues, fixed-income assets remained cautious Tuesday.

All major indices underperformed, with the Dow Jones Industrial and HW 30 — HousingWire’s exclusive list of mortgage-related stocks — dropping 0.84% and 0.87%, respectively.

The mediocre sell-off of mortgage-backed securities and government uncertainty led mortgage real estate investment trusts to post mixed results Tuesday, explained FBR Capital Markets analyst Daniel Fletcher.

"It’s tricky because even if a debt default or shutdown were to happen, fixed income is still the safest asset," he stated. "It’s this back and forth speculation, coupled with no certainty of where we are that has these assets performing the way they are."

Additionally, agency mREITs underperformed with mortgage-backed securities sold off Tuesday, down 30 basis points in terms of price.

However, private-label residential mortgage-backed securities issuer Redwood Trust (RWT) had a stellar Tuesday, with its stock rising 2.13% after UBS initiated the stock as a ‘buy’ with a $24 price target.

Over the past three months, the stock has remained in positive territory amid higher interest rates and an increase in private-label mortgage business — driven by the fact that jumbo mortgage rates have fallen below conforming rates.

Following suit, American Capital Agency Corp. (AGNC) was up 0.81% for the day, as the mREIT was featured on the Nasdaq ‘must watch’ list.

Annaly Capital Management (NLY) remained unchanged Tuesday, closing at $11.61 a share, while Two Harbors Investment (TWO) was down 0.96% for the day, and also down nearly 20% year-to-date. 

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