Is this interest rate environment good for mREITs?

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Is this interest rate environment good for mREITs?

Post by Meconomy153 » Sun Oct 12, 2014 8:13 pm

This interest rate environment is producing better spreads. And as long as the short term rates remain low and long term rates keep increasing, all the mREITs should be realizing substantial increases in interest income.

When the FED first went to Operation Twist/QE1 everyone was freaking out on the expected drop in long term rates and thus the reduction of the spread. But as mortgage rates dropped, their holdings increased in value because they had higher coupon rates. This allowed them to sell off some holdings at handsome profits, fueling taxable income and make up the shortfalls of the reduced interest spread.

Now in essence we are starting to return to the pre-twist regime. Interest income is being boosted by the 50 basis point increase in mortgage rates and their MBS has now become toxic in terms of selling it for a profit and adding to taxable income. However, as the spread increases this income (core income), this will better cover the existing dividend rates and without needing to deliver, there is no need to sell their MBS holdings to generate realized losses.

Repostioning of the portfolio should not be a major concern. They really have time to sit back and carefully filter out lower coupon assets against increasing interest rate spreads. With net incomes still respectable and dividends able to continue to generate sky high yields at current levels, concerns over book value should diminish. Whatever mREITs declares for this quarter’s dividend will very likely be what they consider sustainable for several quarters to come.

What do you think?

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Re: Is this interest rate environment good for mREITs?

Post by EconoD » Fri Oct 17, 2014 11:23 pm

I have no experience of trading mREITS but this article tackles it: ... t-rem.aspx

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Re: Is this interest rate environment good for mREITs?

Post by MaxcoinBeliever » Sat Oct 18, 2014 12:52 pm

The bond market is becoming the only game in town, people are moving towards lower risk instruments because of the current volatility. That is not likely to change. As Max Keiser says, you can't taper a ponzi scheme. Once interest rates begin to rise after the last "greater fool" has jumped on board, the Federal Reserve, BOE, ECB etc will have to pile in with the money printing to keep the rates down. They will have to do this because the only way for rates to go would be up, which would kill the entire world economy. That's when your fiat will be hyper inflated away.

So mREITs, yeah maybe some will default when the short term rates rise, but it will be swiftly reversed by money printing. But in the end, it will all come crashing down one way or the other. We are way too leveraged and hypothecated.

Can someone else jump in here to explain this to me if it is obvious I don't know what I'm talking about?

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Re: Is this interest rate environment good for mREITs?

Post by GN912457 » Thu Oct 23, 2014 3:29 pm

For some one that does not know what their talking about I thought that was pretty good. I can't help, do not know an mriet is or what ever it was, I can pretty much bet its some piece of paper based on another piece of paper based on something else and if I can't touch it or can see that it is something real, I am not normally interested.

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