Real estate investment trust (REIT) exchange traded funds (ETFs) take a hit on growing concern that the ability to finance REITs will be crippled if the debt ceiling is not raised and the U.S. is forced to default.
iShares Dow Jones U.S. Real Estate Index Fund (NYSEArca: IYR) was down 0.58%, Vanguard REIT ETF (NYSEArca: VNQ) was down 0.54% and SPDR Dow Jones REIT ETF (NYSEArca: RWR) was down 0.39%. [REIT ETFs Look Expensive After Big Run: Strategist.]
Mortgage REITs dropped as a result of a 9 basis point jump on the cost of overnight repurchasing agreements, or repo, financing for government-backed mortgage securities.
“This week we’ve seen our financing rates on repo rolls go up like a basis point or two, but no change in haircuts,” said Richard J. King, Invesco Mortgage’s chief executive officer – “haircuts” refer to the down payments required for loans.
Research firm Keefe, Bruyette & Woods (KBW) believes the market pullback from a potential U.S. debt downgrade would provide a buying opportunity in mortgage REITs, according to Indie Research.