11.5% Yields Don't Come From Banks

The real estate sector was separated from financials, but mortgage REITs didn't go with real estate. The financial sector is fundamentally different from mortgage REITs, and they should not be lumped together. Short-term correlation between this company and the financial sector shows investors trading on emotion rather than fundamentals.

Annaly Capital Management (NYSE:NLY) is a mortgage REIT. Officially, that means NLY is part of the "Financial" sector. Even though a new sector was carved out for equity REITs, the mortgage REITs remain stuck in the financial sector. The problem is that the financial sector doesn't have much in common with the mortgage REITs. Sure, banks loan out money. Is that really all it takes to be fall into the financial sector? Banks could earn more interest income on their excess reserves if the short-term rates were increased. The mortgage REITs would stand to see a higher cost of funds that would squeeze their net interest spreads. That sounds like they have pretty much the opposite desires for action (or inaction) from the Federal Reserve.

Source: Seeking Alpha

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