Following several days of alarming weakness, buyers are showing some signs of interest in high-yielding mortgage REIT ETFs such as the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEArca: REM) and the Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT).
Volume surged in both ETFs Wednesday with REM almost quadruple its average daily turnover with almost 90 minutes left in the session. MORT had already eclipsed triple its daily average by 2:30 PM EST. Buyers started stepping into the two ETFs in the late morning after the pair hit multi-month lows.
REM, home to over $1.1 billion in assets under management, traded as low as $13.42 Wednesday, or 25 cents below where the ETF closed on December 31, 2012. MORT missed its New Years Eve low by a mere eight cents.
The two ETFs along with those tracing mortgage-backed securities have come under pressure as quantitative easing tapering concerns have surged to the forefront of investors’ minds in recent weeks. The Federal Reserve has been buying $40 billion in MBS per month, which has boosted MORT and REM. However, the two ETFs have shown vulnerability as investors speculate the Fed’s exit from the MBS market could come sooner than expected. [mREIT ETFs Fall On Fed Tapering Concerns]
Yields on 10-year U.S. Treasurys have jumped recently, moving to the 2.1% level for the first time in 13 months. The impact on REM, MORT and the ETFs’ underlying holdings is palpable because rising rates mean fixed-coupon bond prices slide. Even with Wednesday’s buying efforts, rising-rate hurdles remain for REM and MORT.
“Investors might want to consider that the 10-year yield’s near-term cycle high in 2012 was 2.30% to 2.40%. If you go back to the cycle-high on the 10-year Treasury yield in 2011, that was closer to 3.50%,” reports Jon C. Ogg for 24/7 Wall Street.