Stock price when the opinion was issued
A mortgage REIT. They leverage the slope of the yield curve, to invest in mortgages. Rising rates are not necessarily a good thing for them. It really all revolves around their ability to leverage the spread in the yield curve. There is also some reinvestment risk. If existing pools of mortgages are maturing at higher rates than what you can invest in, that impairs profitability.
It is a mortgage REIT making money by borrowing on the short end of the curve and lending on the long end. The portfolio is much larger than the capital they have to play with, so there is volatility. If rates go up next year it creates refinancing risk for them. He is not comfortable with the leverage in the portfolio.
Has been somewhat cautious on this in the last 3 years. They borrow shorter-term debt and lend money on the long end of the curve. They make money on the spread in between, except that they lever up their borrowing versus their lending at a ratio of about 6 to 1. This means they are very sensitive to changes in the yield curve. It is his expectation that over time, the yield curve will flatten. Doesn’t think you will see an erosion in NAV at this time. Usually want to buy these when they are trading at about $.85 on the dollar, which is where they are right now. Very risky.