Dallas, Texas 09/10/2013 (Financialstrend) – Headquartered in New York, MFA Financial, Inc. (NYSE:MFA) is a Real Estate Investment Trust (REIT). MFA being involved in the business of investing, it invests in residential agency and non-agency mortgage-backed securities (MBS). Over the trailing twelve month the stock has traded in a narrow 52-week range of $6.36 and $8.89. On Monday the stock closed at $7.31 – 18% below its 52-week high and 7% below its 200-day SMA.
As per the recent Bureau of Labor Statistics report for the second quarter, after third and final revision, productivity increased at 2.3% annualized rate from the first quarter where it was -1.7%. The hours worked and output for the second quarter increased 1.4% and 3.7% respectively. Though productivity growth can reduce demand for labor in short-term, it could turn favorable for economy in the long-term.
Productivity growth keeps the Fed at ease to maintain current interest rate environment as there won’t be any inflationary pressures and many experts believe that rates would remain similar until 2015 or 2016. This lack of interest rate volatility, from theoretical perspective, favors mortgage REITs as the increasing volatility increases the cost of hedging. This is because, fall in interest rates shortens the maturity of the bond and rise in interest rates increases the maturity in consideration to pre-payment risks.
Agency REITs invest in government-guaranteed mortgages having lower yields which in turn force them to use more leverage for sustainable return on investment. Given these facts, agency REITs such as MFA, Capstead Mortgage Corporation (NYSE:CMO), American Capital Agency Corp. (NASDAQ:AGNC) are more vulnerable to interest rate shocks than non-agency REITs given the more sensitive mortgages and high leverage and hence lack of interest rate volatility favors such stocks.
During early 90’s when the Fed surprisingly raised interest rates few organizations did report bankruptcy driven by heavy losses on agency paper due to higher interest-rate.