If the Fed decides to hike rates, mREITs will be pressured. Mortgage REITs rely on short-term loans, so costs could rise if short-term rates suddenly spike. However, the negative effect of higher short-term rates could be somewhat offset by quickly rising long-term rates as mREITs benefit from a steeper yield curve and arbitrage the wider spread.
MREITs “are trading at steep discounts to their book values and pay dividend yields around 12%,” reports Barron’s.
iShares Mortgage Real Estate Capped ETF
