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Annaly: How tapering impacts REITs

...if taper remains on schedule

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As the Federal Reserve moves further forward with tapering, companies like Annaly Capital Management (NLY) are factoring in the potential impact once tapering is finalized.

During Annaly’s first quarter conference call, David Finkelstein, head of agency mortgage trading with Annaly, explained that the Fed has roughly $80 billion left in purchases, if you believe the expected schedule of taper.

But Finkelstein explained that Annaly has properly adjusted for it and priced the effects in.

“So in terms of the technical landscape in the market, the fed reducing their footprint does – will have an impact, but we believe that that is priced in.

And given the demand from other yield buyers in the market and other investors, we think it will be fairly balanced, as the Fed does exit their purchase program,” he said.

“And furthermore, they are going to continue to reinvest the proceeds, we believe at least for the foreseeable future, following the end of the taper. So in terms of fed-run portfolio runoff, that would be absorbed by the Fed, as well,” Finkelstein added.

Thursday, Annaly posted a net loss for the first quarter of $203.4 million, or $0.23 per share, compared to a net income of $1 billion or $1.07 per share for the previous quarter, missing earnings estimates by $0.06.

Meanwhile, Federal Reserve Chair Janet Yellen spoke on Capitol Hill Thursday, focusing on at least three economic vectors tied to housing – fiscal policy, job creation and the tapering of bond buying.

During the hearing Yellen said, “What we need to see in order to follow that plan is continued improvement in the labor market and an overall pattern of growth that is sufficient to cause us to project continued improvement,” she said. "Our objective is to make sure that the economy moves back to full employment or maximum employment, and we are making gradual progress....”

However, she added, "Now, if the economy outlook were to change in such a way that we no longer felt the answer to those questions was 'yes,' then we would reconsider our plans."

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