Dividends4Life: A Seasoned Bond Trader Looks At mREITs

A Seasoned Bond Trader Looks At mREITs

Posted by D4L | Monday, February 04, 2013 | | 0 comments »

Mike Lanier is a familiar bond expert that has traded billions of dollars worth of corporate bonds, including for some of the country’s largest financial institutions. “I am a corporate bond guy,” Mike told me, “which is a very different game than managing mortgage bonds. With that caveat, I can tell you what a corporate bond guy thinks about mortgage bonds.”

“A mortgage REIT is like a fund-of-funds, only for mortgage-backed bonds.” They basically are a vehicle for a carry trade. As long as the yield curve is steep — short-term interest rates are much lower than long-term interest rates — their cost of funding is lower than the yields on the MBS they buy. I told Mike that one of the more conservative mortgage REITs known for less leverage and preference for higher-quality MBS over the years — Annaly Capital Management (NYSE:NLY) — has a forward dividend yield of 12.2% and a five-year average yield of 13.8%. “In the second week of January, CCC-rated corporate bonds dipped below 10%, and they rarely do that. What does that tell you about risk and reward?” Mike said.

Source: InvestorPlace

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