Yield Curve Weighs on mREIT ETFs

Conventional wisdom dictates that higher interest rates diminish the chances that homeowners will refinance their mortgage rates. Additionally, many mortgage REITs did not anticipate the sharp spike in interest rates and the result was a rash of dividend cuts from REM and MORT holdings.

“MREITs with lower leverage – namely NLY and AGNC – possess the ability to overpower the challenge posed by a flatter yield curve and a potentially lower net interest spread (NIS). In fact, NLY and AGNC should be able to grow earnings despite 25bp lower NIS and still run with leverage under 8 turns,” according to a Nomura note posted by Barron’s.

iShares Mortgage Real Estate Capped ETF