Key Highlights

  • NLY shares are trading down 0.52% to $18.07, near its 52 week low.
  • The 10 year yield sits near 5.3% after a 3.7% September CPI print.
  • The 30 year mortgage rate is near 7.5%, pressuring agency MBS.
  • Annaly reports Q3 results October 20, EPS seen near $0.75.

Mortgage REIT Holds Steady Amid a Tough Rate Backdrop

Annaly Capital Management (NYSE:NLY) shares are trading little changed near a 52 week low as investors weigh a September inflation print of 3.7% year over year against the company's upcoming third quarter report, due October 20. The backdrop remains challenging for leveraged mortgage investors, with the 10 year Treasury yield near 5.3%, October rate hike odds between 44% and 46%, and agency mortgage backed securities prices down roughly one eighth to one quarter point.

Annaly operates as a diversified capital manager built around agency mortgage backed securities, residential credit, and middle market lending, generating returns from the spread between asset yields and financing costs.

Dividend Coverage Margin Remains Thin

Consensus estimates call for earnings per share near $0.75, which analysts note leaves earnings available for distribution of only about $0.04 per share above the dividend at the company's roughly 7.4 times leverage, a tight coverage margin that remains a key investor focus heading into the report.

Preferred Redemption and Research Coverage

The company recently redeemed its Series I preferred shares, while research firm Piper Sandler has set a price target of $21.50 on the stock. Shares sit near the 52 week low of $17.76, with both the sector exchange traded fund and broader market also under pressure.

Outlook: October 20 Report to Address Dividend Coverage

Annaly shares may remain range bound until the company's third quarter report clarifies dividend coverage and book value trends under the current elevated rate environment.