Latest news with #MBSs
Yahoo
3 days ago
- Business
- Yahoo
AGNC Investment: Its High Yield Looks Tempting -- Why the Stock May Be Ready to Rebound
With a high yield and monthly dividend payout, AGNC often draws the attention of income-oriented investors. However, AGNC has struggled in recent years due to rising mortgage rates and an inverted yield curve. The setup for the stock now looks a lot more favorable. 10 stocks we like better than AGNC Investment Corp. › AGNC Investment (NASDAQ: AGNC) has one of the highest dividend yields in the market, sitting at about 16%. But with a stock price that's steadily declined the past few years, investors are right to ask: Is the payout sustainable, and more importantly, is the stock a buy today? For those unfamiliar, AGNC is a mortgage real estate investment trust (mREIT) that owns agency mortgage-backed securities (MBS), primarily guaranteed by Fannie Mae and Freddie Mac. Because these securities are backed by government agencies, they carry virtually no credit risk. But AGNC's business is far from risk-free, and here's where the story gets complicated. The biggest issue facing AGNC the past few years has been higher mortgage interest rates. There have been two main issues that have pushed up rates. One is that the Federal Reserve aggressively raised benchmark interest rates a couple of years ago to combat inflation. This resulted in mortgage rates also climbing. However, that was not the only reason mortgage rates shot up. Spreads between MBS yields and Treasury yields also began to significantly widen. During the COVID-19 pandemic, the Fed was a huge buyer of MBSs, driving down yields and narrowing the yield spread between MBS and Treasuries. However, after the pandemic, it stopped purchasing MBSs and began letting them roll off its balance sheet as they matured. About the same time, banks also began to back off buying MBS as bond prices fell, and the collapse of Silicon Valley Bank, which was heavily concentrated in long-duration MBSs, only pushed banks further away from the MBS market. During this period, the value of AGNC's MBS portfolio, as measured by its tangible book value (TBV), plunged. From the end of 2021 through the end of 2023, AGNC's tangible book dropped 45% from $15.75 to $8.70 per share. It has slipped a bit further since, and stood at $8.25 at the end of Q1 2025. Ultimately, where AGNC's TBV goes, its stock is sure to follow. Despite the rough stretch that AGNC has seen, the setup for the stock now looks a lot more favorable. Fed Chairman Jerome Powell has signaled that more rate cuts could be on the table, and the Fed's own projections point to lower rates in the years ahead. That should be a much better environment for AGNC. Fed rate cuts could benefit AGNC in two main ways. First, it would likely reduce its short-term funding costs; AGNC tries to borrow money to invest in MBSs with longer maturities and higher yields. Second, lower rates could help increase its TBV by boosting MBS valuations. The past few years, the Treasury yield curve was inverted, which means that shorter-term Treasuries, like the two-year, had a higher yield than long-term Treasuries, like the 10-year. Not surprisingly, this is not a good environment for a company that generates its income from the spread between short- and long-term rates. Now, AGNC actively hedges out its funding costs to better align them with the duration of its MBS assets. However, it's not able to fully offset the pressure from an inverted curve over an extended period of time. With the yield curve flipping from inverted to positive (long-term yields being higher than short-term yields) late last year, though, AGNC stands to benefit from wider spreads. AGNC's portfolio is also well-positioned if MBS yields begin to fall. More than 80% of its holdings carry coupons of 6% or lower, which helps limit prepayment risk. Prepayment risk is highest when homeowners begin to refinance into lower-rate mortgages, forcing mortgage REITs to reinvest in lower-yielding MBS. While high dividend yields are attractive, they can also be a warning sign. However, AGNC has maintained the payout through a very difficult environment, albeit sometimes at the expense of a lower tangible book value. It's not fair to say the dividend is completely safe, but if the yield curve continues to steepen, the dividend should become more sustainable. If MBS-to-Treasury yield spreads narrow from historically wide levels as banks or other institutions reenter the MBS market, AGNC could see a meaningful recovery in both its book value and share price. That's the best-case scenario. However, even if that doesn't play out, AGNC still has room to deliver solid total returns. The company pays a monthly dividend of $0.12 per share, which equates to a yield of about 16% based on recent prices for the stock. That dividend income alone puts it in a strong position to outperform in a market that seems to have stalled. With even a modest portfolio value recovery, AGNC could deliver annual 20% to 25% total returns during the next few years. Overall, I'd consider AGNC a high-risk, high-reward income play. However, the stock has already taken the brunt of the blow from higher interest rates and wide MBS-to-Treasury yield spreads, and the current environment may finally be turning in its favor. The wild card is whether historically wide MBS-to-Treasury spreads begin to narrow, because if they do, the upside could be significant. For investors who understand and are comfortable with the risks, AGNC offers a very high yield with strong potential upside. It's not a set-it-and-forget-it stock, but at current prices, it could be a smart investment for income-focused investors during the next few years. Before you buy stock in AGNC Investment Corp., consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and AGNC Investment Corp. wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $674,395!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $858,011!* Now, it's worth noting Stock Advisor's total average return is 997% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 2, 2025 Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. AGNC Investment: Its High Yield Looks Tempting -- Why the Stock May Be Ready to Rebound was originally published by The Motley Fool
Yahoo
10-05-2025
- Business
- Yahoo
China's Nuclear Trade War Option--How Xi Could Destroy The US Housing Market In 1 Fell Swoop
Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. As the intensity of President Donald Trump's trade war with China continues to ratchet up, analysts are beginning to fret about the possibility that China may exercise its version of a "nuclear option." Chinese President Xi Jinping has not indicated any willingness to back down, and that may be because he knows he has numerous cards left to play. According to CNBC, China holds over $1.2 trillion worth of America's mortgage-backed securities. CNBC notes that loan servicer Ginnie Mae estimates that China's MBS portfolio accounts for 15% of the outstanding mortgage balances in the U.S. The U.S. housing market would be utterly devastated if Xi decided to take the gloves off and flood the market with its MBS. It's also worth mentioning that China holds a lot of US debt in treasury bonds. The combined weight of that economic power could devastate the American economy. Don't Miss: Inspired by Uber and Airbnb – Deloitte's fastest-growing software company is transforming 7 billion smartphones into income-generating assets – Maker of the $60,000 foldable home has 3 factory buildings, 600+ houses built, and big plans to solve housing — Guy Cecala, executive chair of Inside Mortgage Finance, told CNBC, "If China wanted to hit us hard, they could unload Treasurys. Is that a threat? Sure, it is. They're going to look at pushing levers and trying to put pressure. Targeting housing and mortgage rates is a powerful driver of something like that." Mortgage rates have been rising rapidly because of the recent Treasury bond sell-off, and $1.2 trillion worth of mortgage-backed securities flooding the market would be a devastating one-two punch for several reasons. First, it would almost immediately result in higher interest rates at a time when most Americans are already struggling with housing costs. Second, China flooding the market with its MBSs could cause a chain reaction where other nations follow suit to avoid being stuck without a chair when the music stops. Canada and Japan also hold large mortgage-backed security portfolios. Under normal circumstances, it's difficult to imagine either Japan or Canada taking such an extreme measure. Trending: , which provides access to a pool of short-term loans backed by residential real estate with just a $100 minimum. Japan and Canada have been steadfast American allies on foreign and economic policy for decades, but Trump has targeted both nations with punishing tariffs. Even though the tariffs on Canada and Japan are not as extreme as the ones on China, it's not hard to imagine either nation drifting further towards China's orbit. In other words, the current circumstances are anything but normal. The threat is keeping a lot of financial analysts up at night. Eric Hagen, a mortgage and specialty finance analyst at BTIG, told CNBC, "Most investors are concerned that mortgage spreads would widen in response to either China, Japan, or Canada coming in with a retaliatory objective. The concern, I think, is on folks' radar screens, and being raised as a potential source of friction."CNBC also pointed out that the Federal Reserve, which bought up large tranches of mortgage-backed securities during the pandemic, has been quietly selling them to solidify its balance sheet. Hagen told CNBC, "That is a source of potential pressure on top of this whole conversation." Although China has been slowly unloading its mortgage-backed security portfolio, there has so far been no indication it's planning to flood the market with them. The effects of such a move would certainly hurt the Chinese economy for several decades, but there is another dimension to this equation. China's history dates back thousands of years, whereas the U.S. is not quite 250 years old. A multi-decade housing correction would be the equivalent of the blink of an eye in China's history, but it would be nearly 10% of America's. This is why everyone is hoping cooler heads will prevail. Read Next: Shark Tank's Kevin O'Leary called Missing Ring his biggest mistake — Don't repeat history— This Jeff Bezos-backed startup will allow you to . Image: Shutterstock Send To MSN: 0 This article China's Nuclear Trade War Option--How Xi Could Destroy The US Housing Market In 1 Fell Swoop originally appeared on Sign in to access your portfolio
Korea Herald
28-04-2025
- Business
- Korea Herald
ABS issuance drops in Q1 on decline in mortgage-backed securities
The issuance of asset-based securities in South Korea fell markedly in the first quarter due to a sharp decline in the issuance of mortgage-backed securities, data showed Monday. The ABSs issued last year came to 8.3 trillion won ($5.77 billion) in the January-March, down 43.8 percent, or 6.5 trillion won, from a year earlier, according to the data from the Financial Supervisory Service. ABS refers to securities based on such assets as mortgages, auto loans, credit card receivables and student loans. The decline came as MBSs issued by the Korea Housing Finance Corp. dropped 55 percent on-year to 2.65 trillion won in the first quarter amid the overall housing market slump. ABS issuance by financial companies fell 55.6 percent on-year to 3.06 trillion won in the first quarter, while that by non-financial firms surged 26.6 percent to come to 2.64 trillion won. As of end-March, the value of outstanding ABSs had stood at 251 trillion won, down 2.9 percent, or 7.4 trillion won, from a year before, the data showed. (Yonhap)
Forbes
13-04-2025
- Business
- Forbes
Our Recession Defense Plan: Giant Monthly Dividends
Monthly salary. On time money loan payment concept. Vector illustration isolated. Although some tariff hikes have been paused, a recession is still very much in play. Just a few days ago, I wrote that 'this is the time to recession-proof our retirement holdings.' And why not? GDP estimates have tanked. So has consumer sentiment. Goldman Sachs made headlines for raising its probability of recession (from 20% to 35%). Fine, but equity analysts often get caught up in crowds. What was more striking was hearing a similar message from the debt watchers. Consider this post from Mark Zandi, Moody's Analytics' chief economist: Mark Zandi Recession Tweet In my previous post, I showed readers how to recession-proof their portfolio with municipal debt. But tax-advantaged munis aren't the only way to hunker down for the worst. A variety of debt would benefit if Treasury Secretary Scott Bessent's campaign to flatten long rates is successful. And we can get the most bang for our buck via closed-end funds (CEFs), which not only deliver much more yield—like the 8.9%-10.7% paydays I'll highlight today—than comparable exchange-traded funds (ETFs), but can trade at a discount to their net asset value (NAV), meaning we can buy those bonds for less than they're actually worth. For instance: Western Asset Inflation-Linked Opportunities & Income Fund (WIW)Distribution Rate: 8.9% The Western Asset Inflation-Linked Opportunities & Income Fund (WIW) is an intriguing play if only because the current situation is so unique. The majority of WIW's holdings (80%+) are inflation-linked securities, largely Treasury Inflation-Protected Securities (TIPS). The rest of its assets are sprinkled around investment-grade corporates, emerging-market bonds, non-agency mortgage-backed securities (MBSs) and other debt. The resulting portfolio is extremely high in credit quality. The play here seems contradictory at first. Trump's tariffs, if they hold, are widely expected to juice inflation, for obvious reasons. Research houses have been raising their CPI and PCE estimates left and right over the past few days. But if inflation gets out of control, the Federal Reserve would swoop in and hike rates to try to quell rising prices like it has in the past, right? And if so, wouldn't that keep bonds grounded? Possibly. But between federal-government purges and the potential for a lot of short-term tariff pain here at home, unemployment estimates are also going up. And while higher joblessness would weigh on inflation somewhat, it could also stay the Fed's hand and put downward pressure on long-term rates. In short: Stagflation (high inflation + slow economic growth) is actually a win-win situation for TIPS, and thus a win-win for WIW. And we can expect to get more out of WIW than a plain-vanilla ETF in a TIPS-friendly environment. That's largely because of 30% debt leverage, which is an elevated amount that lets management go full-throttle on its highest-conviction picks. That same leverage is how WIW gets 9% monthly dividends out of such highly rated holdings. Western Asset's fund trades at an 11% discount to its net asset value (NAV), so we're getting its holdings for 89 cents on the dollar. That's good—it would be great, but WIW has averaged a 12% discount over the past five years. Nuveen Preferred & Income Opportunities Fund (JPC)Distribution Rate: 10.7% Few debt CEFs will get anywhere close to WIW's portfolio quality, but we shouldn't look down our noses at Nuveen Preferred & Income Opportunities Fund (JPC), which also manages to squeeze a stellar yield out of a sterling portfolio. As the name would suggest, Nuveen's CEF is a preferred-stock fund. Preferreds technically aren't debt, but they share a lot of the same characteristics. So they're bond proxies, and they too can thrive should we get lower long-term rates. JPC specifically holds roughly 280 preferreds with a heavy overseas bent—currently, the portfolio is split 55/45 domestic/international. But the companies behind the preferreds are exactly what we'd expect from a preferred fund: Financial firms such as Barclays (BCS), JPMorgan Chase (JPM), and Wells Fargo (WFC) make up the lion's share of assets. Credit quality is also much better than other funds in JPC's category. With JPC, we're getting both the benefit of human managers (who can target underpriced opportunities) and an even loftier amount of leverage, at 39%. The result is, like WIW, a juiced-up version of a plain-vanilla index ETF: JPC Returns But look at that nasty dip at the far right. That's worse than a lot of bond funds, in part because preferred stocks—while 'preferred' compared to common equity—aren't as secure as true debt. Extreme fright in the equity markets can weigh on preferreds, too, which makes timing all the more important. Right now, JPC is trading at a roughly 2% discount to NAV versus a five-year average of 5%. We're getting a bargain on this double-digit monthly dividend, and we could be suffering additional short-term headaches, too. BlackRock Credit Allocation Income Trust (BTZ)Distribution Rate: 10.1% I highlighted a BlackRock muni fund a few days ago, but it's not the only BlackRock product that's worth a look in this environment. The BlackRock Credit Allocation Income Trust (BTZ) is a multisector bond fund whose managers have a true 'go anywhere' mentality. Right now, shares of BTZ give us exposure to investment-grade corporates (40%), junk (35%), developed sovereigns (17%), securitized products (11%), small amounts of bank loans and emerging-market debt, even a trace of equity. The sizable chunk of high-yield debt means credit isn't stellar—in fact, on average (BBB-), it's about a step lower than the average multisector bond fund's credit (BBB). We get the same combination of opportunistic management and high (35%) leverage as we do with the other funds. The downswings are still violent, but the outperformance is massive. In other words, while we still want to buy at ideal prices, the pressure isn't as great for us to jump into BTZ at exactly the right moment. A 8% discount to NAV versus a 6% five-year average is nothing to sneeze at. Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: How to Live off Huge Monthly Dividends (up to 8.7%) — Practically Forever. Disclosure: none
