Is AGNC Investment a Buy at a Discount to Book Value?
While the volatility in the stock market has received a tremendous amount of attention in the press, the drop in interest rates is perhaps even more dramatic. The 10-year bond yield has fallen from 1.92% to 0.77% since the beginning of the year. Falling interest rates are good for bonds, and mortgage-backed securities are bonds, so mortgage real estate investment trusts (REITs) like AGNC Investment Corp. (NASDAQ: AGNC) should be doing great, right? Not so fast.
We have seen an unprecedented drop in interest rates over the past two months, which is great news for everyone's bond portfolio. If you owned the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT), you are up over 23% year-to-date between dividends and capital gains. Corporate bonds have participated less, as the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEMKT: LQD) is only up about 5.5%, presumably on recession fears offsetting the change in interest rates. Agency mortgage-backed securities are guaranteed by the government, so there is no credit risk. However, the big companies that invest in these securities have not participated in the rally. Why is that?
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Source Fool.com
