The analysts at Keefe, Bruyette & Woods said they would rather remain “buyer than sellers” of mortgage real estate investment trust stocks in the wake of
Michael Widner and Sean Tillman based their opinion “given the group trading at sizable
The statements by Bernanke indicate a “faster tapering than we had anticipated,” the analysts said, given the sharp move higher in treasury yields, the market had a similar opinion.
Widner and Tillman added the setting of expectations could lead to stability. They said the market anticipates changes and prices them in quickly, if not actually ahead, of when they are announced.
“If this holds true then even though the market didn’t appear to like the message it might at least be largely priced into bonds after the sharp afternoon selloff” on Wednesday, the analysts said.
They expect the book values on mortgage REIT stocks “will likely have a negative bias.” They also believe dividends are likely to improve modestly in the second half of this year and that price to book ratio multiples seem unlikely to “materially close their 10% average discount in the near term.”
As a result, and based on prior market reactions to quantitative easing announcements, “we'd expect most of the impact of Wednesday's information to be priced into bonds by the end of the week. We suspect that will be a pre-requisite for mortgage REITs finding support and valuation recovery,” KBW said.
