Potential Agency mREIT Issues
Summary
- Potential effects of declining global fixed income liquidity and the global paradigm shift of holdings on the Agency mREIT market.
- Potential effects of interest rates; the yield curve; the contractionary trajectory of economic conditions and market liquidity on the Agency mREIT market.
- Potential effects of Fed QE MBS purchases and potential balance sheet reduction on the Agency mREIT market.
- Discussion of the mREIT business model; liquidity factors and mREIT book values.
MikeGinn at SA asks: "How could the mREITs be impacted by bond liquidity issues that I'm hearing so much about these days? I know MBS are liquid and will likely remain so, but could there be contagion to aspects of the mREIT business model? Also, do the large discounts to book value exist to address any risks besides a concern about mREITs' ability to navigate a slow to moderate and perhaps somewhat uneven rise in interest rates which damage their income and book value in various ways? All of the mREIT analysts here on SA say the mREITs are CHEAP! but I'm still nervous -- should I be?"
- Potential effects of declining global fixed income liquidity and the global paradigm shift of holdings on the Agency mREIT market.
- Potential effects of interest rates; the yield curve; the contractionary trajectory of economic conditions and market liquidity on the Agency mREIT market.
- Potential effects of Fed QE MBS purchases and potential balance sheet reduction on the Agency mREIT market.
- Discussion of the mREIT business model; liquidity factors and mREIT book values.
MikeGinn at SA asks: "How could the mREITs be impacted by bond liquidity issues that I'm hearing so much about these days? I know MBS are liquid and will likely remain so, but could there be contagion to aspects of the mREIT business model? Also, do the large discounts to book value exist to address any risks besides a concern about mREITs' ability to navigate a slow to moderate and perhaps somewhat uneven rise in interest rates which damage their income and book value in various ways? All of the mREIT analysts here on SA say the mREITs are CHEAP! but I'm still nervous -- should I be?"
Global Fixed Income
Liquidity in global fixed income markets has been on the decline. "The further you move out the risk spectrum the larger the decline in liquidity. High-yield, bank loan and emerging market sectors have experienced the greatest declines, while the declines in US Treasuries (USTs) and agency MBS sectors have been less apparent. Other developed governments and investment grade credit fall somewhere in between.
Maintaining portfolio liquidity for mutual funds is of significant importance, and as such, we have been increasing the use of instruments such as cash, T-Bills, ETFs and derivatives to provide additional liquidity."
In bold above, the potential for asset term mismatches, shortage of T-bills, illiquidity of some derivatives under stress, and illiquid mutual funds and ETF's is a "narrowing of the exits" that we have Nattered about at great length in past missives such as Global Asset Correlation and The Temple Grandin of Shadow Banking 1, 2 and 3.
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Liquidity in global fixed income markets has been on the decline. "The further you move out the risk spectrum the larger the decline in liquidity. High-yield, bank loan and emerging market sectors have experienced the greatest declines, while the declines in US Treasuries (USTs) and agency MBS sectors have been less apparent. Other developed governments and investment grade credit fall somewhere in between.
Maintaining portfolio liquidity for mutual funds is of significant importance, and as such, we have been increasing the use of instruments such as cash, T-Bills, ETFs and derivatives to provide additional liquidity."
In bold above, the potential for asset term mismatches, shortage of T-bills, illiquidity of some derivatives under stress, and illiquid mutual funds and ETF's is a "narrowing of the exits" that we have Nattered about at great length in past missives such as Global Asset Correlation and The Temple Grandin of Shadow Banking 1, 2 and 3.
This missive was published as an exclusive to Seeking Alpha. To access the ENTIRE text for FREE on Seeking Alpha, please click here. The Nattering One does not receive remuneration if you register, only satisfaction.
There is no cost involved and it has been our experience that if you exert control (by unchecking a box of two) over your communications settings in your Seeking Alpha profile, your email inbox will not be polluted with one bit of Spam (not even the cured pork shoulder variety. Tasty even.)
As we are now a "contributor" at Seeking Alpha, our published articles, instablog and comments can be found here. Please continue to follow The Nattering Naybob here and at Seeking Alpha. We thank you for your support.
This missive was published as an exclusive to Seeking Alpha. To access the ENTIRE text for FREE on Seeking Alpha, please click here. The Nattering One does not receive remuneration if you register, only satisfaction.
There is no cost involved and it has been our experience that if you exert control (by unchecking a box of two) over your communications settings in your Seeking Alpha profile, your email inbox will not be polluted with one bit of Spam (not even the cured pork shoulder variety. Tasty even.)
As we are now a "contributor" at Seeking Alpha, our published articles, instablog and comments can be found here. Please continue to follow The Nattering Naybob here and at Seeking Alpha. We thank you for your support.
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