‘Hostile Fed’ Spurs MBS Sell-Off
Regular readers will recognize this mortgage REIT. “Annaly Mortgage Management, Inc. today reported a net loss for the quarter ended December 31, 2005 of $136.8 million. During the fourth quarter $2.3 billion face amount of securities were sold, resulting in a realized loss of $65.3 million. In addition, approximately $2.9 billion face amount of securities were reclassified as other-than-temporarily impaired as of December 31, 2005, with an approximate loss of $83 million.”
“‘Our results for the fourth quarter reflect our Company’s response to the persistence of current market conditions,” said Michael A.J. Farrell, CEO. ‘No financial institution is immune from the rise in the cost of funds and the flattening of the yield curve.’”
“For the quarter ended December 31, 2005, the annualized yield on average earning assets was 4.10% and the annualized cost of funds on the average repurchase balance was 4.01%, which equates to an interest rate spread of 0.09%. This is a 118 basis point decrease over the 1.27% annualized interest rate spread for the quarter ended December 31, 2004.”
“Wellington Denahan-Norris, Vice Chairman, COO of Annaly (said), ‘Of the $2.3 billion in assets sold during the quarter, approximately 78% were hybrid adjustable-rate mortgage-backed securities. A significant portion of the assets we sold were replaced with fixed-rate mortgage-backed securities.’”
“‘We are proud of the fact that we have grown our asset management business over 20% in 2005 in the face of a hostile Federal Reserve and the unprecedented long duration of this tightening cycle,’ said Mr. Farrell.”
I guess in the WSJ today there was an article about how oil production is having problems in Latin America, does anyone have that article?
The yield curve at work,
Interest income for qtr. ending $:
june 30, 05..37.8 million
sept 30, 05..22.4 million
dec 30, 05..13.9 million
Their MBS line item decrease from $19.1 billion on June 30th, 05, to $15.9 billion at the end of 05.
cramer said that annaly had the best management, so it seems even the best can’t handle the slowdown in housing and the yield curve.
‘Of the $2.3 billion in assets sold during the quarter, approximately 78% were hybrid adjustable-rate mortgage-backed securities. A significant portion of the assets we sold were replaced with fixed-rate mortgage-backed securities.
Looks like Annaly is prepared to take their lumps early. I wonder who bought the rubbish they were selling.
ajh,
Right, they moved almost completely into AAA paper with guarantees. I’m sure if you discount an ARM MBS enough, somebody will buy it.
Look at this… The 2 yr is at the same level as the 30 yr
The inverted curve is looking nastier by the day
U.S. Treasury Bonds
Maturity Yield Yesterday Last Week Last Month Price Yield Chg Price Chg
3 Month 4.31 4.30 4.27 4.09 98.958 0.01 0.034
6 Month 4.45 4.44 4.39 4.22 97.800 0.00 0.035
2 Year 4.64 4.62 4.57 4.38 99.504 0.01 -.024
5 Year 4.53 4.54 4.49 4.35 98.747 -.01 0.079
10 Year 4.54 4.58 4.55 4.42 99.676 -.02 0.218
30 Year 4.64 4.67 4.69 4.61 110.746 -.05 0.851
Treasury Yield Curve
http://www.bondtalk.com/global.cfm?S=charts&SS=treasury_yield_curve
“‘We are proud of the fact that we have grown our asset management business over 20% in 2005 in the face of a hostile Federal Reserve and the unprecedented long duration of this tightening cycle,’ said Mr. Farrell.”
Aww one questions Mr. Farrell:
Interest rates were at/around 1%. The Fed lowered rates to their lowest rates in 40 years. Did you think the Fed was going to keep them low forever? Were you hoping for 0%, then -.5% rates?
Have you every heard of a guy name Volker? He ran the Fed at one time?
And this guy is one of the “brighter” guy!
Actually, I think Farrell and NLY are being more responsible than most. Read some of their quarterly and annual reports. They never took the “this time its different” route. They’ve known this day was coming and are dealing with it in an aboveboard fashion now that its here. My hat is off to them for that. I plan on picking some of this up when the curve inversion starts unwinding.
SOMETHING WICKED THIS WAY COMES
Fed Focus
Paul McCulley
Managing Director PIMCO
February 7, 2006
mcculley@pimco.com
“…When the cyclical turn comes, it will be a wicked turn, our guts say, as conventional policy gives way to unconventional property market weakness….”
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/FF/2006/FF+February+2006.htm
Forget that the 6mo note is higher than the 30 year bond
Pretty soon we will be looking like England’s yied curve
WOW this yield curve looks like an atomic melvin some kids used to get in middleschool where your underwear is jacked up to your bellybutton.
Regardless both expierences (major inversions and Melvins ) are both non pleasant expierences.
when they reintroduce the 30 year, shouldn’t that drop the 30 yr rate even further?
John:
You are right. The yield dropped today when they introduced the new 30 year… here are the rates from Bloomberg.com
rate at far right..
2-Year 4.375 01/31/2008 99-15+/4.65
3-Year 4.500 02/15/2009 99-21+/4.62
5-Year 4.250 01/15/2011 98-23¼/4.54
10-Year 4.500 02/15/2016 99-22+/4.54
30-Year 4.500 02/15/2036 100-00/4.50
Oh by the way Yield curve fully inverted now.
Annaly thinks it’s safe hiding out in fixed. Wait ’til the defaults start hitting…
Jennifer Kerkove, the 36 or 38 year old Executive with Anally announced her resignation months ago to spend more time with her family.
Nope. She saw the writing on the wall and figured she made her money and now it’s time to exit so she can drive her Porsche Carerra GT and live in her huge house on Long Island.
Yep, the sh*t is about to hit the fan. She didn’t leave to spend more time with her family–she left because she would have ended up fired.
Oops I meant Jennifer Karve.
I told my dad to sell off his MBSs in his retirement account back in October. He was going to take my advice, but when he talked to his accountant, the accountant convinced him to not change any positions for another 4-5 years!! This will be the fourth article that I send him, hopefully he will wise up and gets the courage to bail out.
I’ve been saying the same thing to my mother; yet she still keeps buying this junk. She thinks I’m overreacting to the bubble, and people will always want to buy a house, especially in Southern California (she’s a retired RE broker who called it a bubble in 2002, but has since changed her mind). Oh well…
Good for you for trying to save his retirement, though!
If it’s in his retirement account then tax issues cannot possibly be of consequence - the issue becomes one now of safety. I would really be asking his accountant some hard questions, like - why does he think these are safe?
Your father is lucky to have you.