Events were starting to shape up quite nicely for the embattled mortgage REIT market, thanks to a very dovish Federal Reserve. This accommodative Fed looked to help keep the spread wide between short and long term rates, a situation which is welcomed news for mortgage REITs.
That is because these types of companies borrow short term debt and then take this capital and buy longer-term mortgage securities. These firms generally use leverage as well, so a wide (and stable) spread between the short and long term is crucial for their success.
Yet despite some confidence on the rate front, the actual trading in the mortgage REIT space hasn’t been too great lately, largely thanks to earnings. In particular, American Capital Agency Corp (NASDAQ:AGNC) saw extreme weakness following its latest earnings report.
AGNC in Focus
The company missed the Zacks Consensus Estimate of 84 cents a share, earning just 61 cents a share instead. This compares unfavorably both with the previous quarter and the year ago quarter, while the firm also reported a hefty dividend cut of just 80 cents per share, a cut of nearly 24%.
“We continued to see substantial volatility in both interest rates and mortgage spreads,” said President and CIO Gary Kain in a statement. “We remained disciplined in our approach to risk management and prioritized book value preservation over short-term earnings.”
AGNC’s miss unfortunately continues the recent trend for the company at earnings season, as it has seen four misses in a row now. They have all been pretty big misses too, as all of the last four were by double digit percentages (see Bet Against Real Estate with These Short REIT ETFs).
Thanks to this trend, the stock was down significantly on the day following the report, with the stock slumping by almost double digits before trending towards an 8.3% loss. The stock also saw huge volume, with more than four times as many shares moving hands for the session than in a normal day.