The Federal Reserve under new Chair Kevin Warsh held interest rates steady at 3.5% to 3.75% in his first meeting, signaling a shift from his earlier calls for cuts amid rising inflation concerns. This stance creates near-term headwinds for mortgage REITs like Annaly Capital and AGNC Investment, as rising rates could reduce the tangible net book value of their existing bond-like mortgage securities. However, future investments would benefit from higher yields, and Warsh's plan to shrink the Fed's balance sheet by selling mortgage securities could widen spreads, boosting long-term profitability. Warsh has formed committees to review the Fed's operations, indicating potential structural changes ahead. Both REITs offer dividend yields above 13%, but their volatile payout histories warrant caution.
AGNC Investment Corp.Fed holds rates steady, rising rates reduce tangible net book value of AGNC's mortgage securities.
Annaly Capital Management, Inc.Fed holds rates steady, rising rates reduce tangible net book value of Annaly's mortgage securities.