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The debate over mortgage REITs rages on

Interest-rate volatility has put mortgage REITs front and center in a broad debate about investment strategy in the financial markets, with even the International Monetary Fund weighing in on the matter today. But CEOs of some mortgage REITs are fighting back, as Marketwatch covers:

“We hedge the vast majority of our interest-rate exposure,” Rich King, chief executive of Invesco Mortgage Capital, an Atlanta-based mortgage REIT, told MarketWatch . “We see great opportunities.”

The question, of course, is what the Fed will do to affect interest rates — which will affect REITs, which use short-term funds to buy mortgage-backed securities, directly. Marketwatch captures the take from analysts at Keefe, Bruyette & Woods:

Unfortunately for mortgage REIT investors and others, it’s just not clear what central bank officials plan to do.

“The challenge is [the Fed’s quantitative easing program] has destroyed market confidence that anyone knows where rates ‘belong,’ so it seems unavoidable that until rate manipulation ends rate volatility will remain. That can be very difficult for mortgage REITs to hedge,” according to KBW analysts.

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