BTIG raised Annaly Capital Management (NLY) to Buy and downgraded AGNC Investment (AGNC) to Neutral as mortgage-backed security, or MBS, spreads reach multi-year tights.
NLY shares were +0.61% Tuesday pre-market to $22.91, while AGNC was -0.27% to $11.04.
“On a relative basis, with MBS spreads versus Treasuries near multi-year tights around 115 bps, we’re preparing for a little more upside in NLY if spreads grind tighter,” said analyst Eric Hagen. “We expect it could show a more stable stock valuation if spreads widen back out if interest rate volatility is resurfacing.”
NLY was upgraded to Buy from Neutral, with the price target set at $25.00.
“It’s not currently our expectation for MBS spreads to revisit the absolute tights near 75 bps, like we saw at the end of 2021, although our outlook embeds some belief that the Trump Administration will try to orchestrate lower mortgage rates, especially if it dovetails with broader policy objectives surrounding a relisting of the GSEs,” said the research note.
Meanwhile, AGNC was lowered to Neutral from Buy, with the $10.50 price target withdrawn.
“We continue to believe the stock can support a premium valuation with MBS spreads at these levels, although we also tend to believe there’s better support to raise leverage when spreads are wide(r), which somewhat reinforces our expectation for more limited valuation upside at this point,” said Hagen.
Annaly Capital Management is also rated a Buy by the Seeking Alpha authors and the Wall Street community. AGNC is also viewed as Buy by the analysts.