Investors are confident that interest rates will not dramatically shift away from their current levels, a prediction that allowed mortgage real estate investment trusts on the HW 30 index to perform better than anticipated Monday.
The sector is feeding off news from last week that the Federal Reserve will continue its current pace of mortgage-backed securities purchases for the time being, placing mREITs in a situation to feed off the catch up in trade, explained FBR Capital Markets analyst Dan Altscher. Despite the Fed delaying the decision, the overall stock market recoiled Monday when a series of Fed Bank presidents put out statements suggesting tapering could definitely begin in the coming months.
But mREITs continued to have a good day regardless of those Fed Bank reports.
Over the past few months, "mREITs have underperformed, so they’re catching up on higher dividend payments and are posting a relatively better performance when compared to other REITs that aren’t trading nearly as well," Altscher stated.
The idea that the central bank may or may not begin winding down its bond-buying program this year has pushed enough mREIT stocks to hold significantly less book value volatility, FBR Capital Markets said. Underlying portfolios don’t have as much deleveraging in how each company will hedge, the FBR analysts further explained.
However, multiple Fed bank presidents cautioned the market Monday that quantitative easing may come as early as October -- signaling the eventual tapering of MBS and/or Treasurys purchases. mREITs stayed strong in the face of this news.
On the HW Index, American Capital Agency Corp. (AGNC) rose 2.24% for the day. The stock opened at $23.19 and ended the day at $23.71 per share.
PennyMac Mortgage Investment Trust (PMT) rose 0.72%, starting the day at $22.21 and ending it at $22.35 per share. Over the past month, PennyMac’s stock grew more than 5%.
The private-label RMBS dominant issuer Redwood Trust (RWT) ended the day up 0.56%. The stock started the day at $19.71 and rose to $19.71 by day’s end.
Annaly Capital Management (NLY), another mREIT, continued on its stride Monday, rising 1.16% for the day and growing more than 10% the past month.
The HW 30 index as a whole fell 1.66% on Monday as officials from Fed banks suggested tapering could still occur in the near future.