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MBS Yields Are Boosted And What That Means For mREITs And MBS ETFs

Published Tue, 15 May 2018 08:00:00 -0400 on Seeking Alpha

There has been a lot of speculation about what will happen when the Fed begins to unwind its balance sheet. One of the logical conclusions is that it will boost Treasury bond yields. Deutsche Bank (NYSE: DB) claims it could boost yields anywhere from 0.4 to 0.56%. This makes sense because as the central bank withdraws its demand for treasuries it will drive down the price increasing yields. But what about mortgage-backed securities (MBS)? Couldn't the same thing occur with MBS? The following article will discuss this and if it is likely to happen. If it does this could present additional yield for mREIT ETFs: REM, MORL, MORT, REML, MRRL. This could also mean a decline in the value of MBS ETFs: MBB, VMBS, LMBS, CMBS, MBG, GNMA, MBSD, HQBD.
The Fed's Balance Sheet Starting in 2008 the Fed purchased lots of agency MBS in order to prop up the economy. Since September 2017, the Fed has begun to unwind its balance sheet. The Fed has a balance sheet comprised of the assets below:
Source: The Fed's Quarterly Report for March 2018The Fed is currently holding around 1.7 trillion in agency Mortgage Backed Securities! This is around 29% of all outstanding MBS as of September 2017 according to a study by the Urban Institute.
The Fed is unwinding its balance sheet by letting its assets mature. In other words, the Fed is choosing not to replace its assets. This has already begun to take effect if we look at the more recent change in the total assets by the Fed.
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Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
ISHARES FTSE NAREIT MORTG PLUS CAPPED INDEX FUND 42.79   0.0 0.00 0.00 0.00

ISHARES FTSE NAREIT MORTG PLUS CAPPED INDEX FUND - REM
ISHARES FTSE NAREIT MORTG PLUS CAPPED INDEX FUND - REM  


Older articles featuring Ishares Ftse Nareit Mortg Plus Capped Index Fund (REM):
Annaly Capital's Dividend, BV, And Valuation Versus 19 mREIT Peers (Post Q1 2019 Earnings) - Part 1
REITs Climb In Risk-Off Rally As Yields Flirt With 18-Month Lows
First 2019 Update To Steve's Dividend Portfolio And Strategy For Replacing My Salary With Dividend Income
Fully Assessing AGNC Investment's Results For Q1 2019 (Includes May-July 2019 Dividend Projection)
Modern Monetary Theory And 20+% Dividend Yields On REML, MORL And MRRL
Considering 20+% Yielding REML As A Substitute For MORL
Annaly Capital's Dividend, BV, And Valuation Vs. 19 mREIT Peers (Includes Q2-Q4 2019 Dividend Projections) - Part 2
Dividend Yields Above 20% For REML, MORL, And MRRL, But Concerns Keep Arising
Annaly Capital's Dividend, BV, And Valuation Vs. 16 mREIT Peers (Post Q4 2018 Earnings) - Part 1
5 High Yields To Keep Your Portfolio Safe With Preferred Shares

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