Annaly Capital Increases Exposure to Credit Risk as Agency Spreads Widen

As the economy recovers from COVID-19-related disruptions, investors are beginning to pay a lot more attention to the Federal Reserve and how its actions will affect their portfolios. Nowhere is this more of a concern than in the mortgage real estate investment trust (REIT) space, where companies like Annaly Capital (NYSE: NLY) are positioning themselves for when the Fed starts to reduce its purchases of mortgage-backed securities. Annaly recently reported second-quarter earnings and gave an update on how it is preparing for the end of Fed asset purchases.

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Annaly Capital is a mortgage REIT, which is different than the more traditional REIT. Most REITs follow a landlord/tenant model where the REIT develops a property and then rents out the units. Its profit margin is very roughly the difference between what it pays in interest and its rental income. Mortgage REITs don't invest in real estate; they invest in real estate debt (in other words, mortgages). Their profit margin is the difference between the interest they earn on their mortgage portfolio and what they pay in interest on their borrowings.

Source Fool.com