A downgrade of government paper, which is the real threat, could force collateral calls, reduced leverage and funding issues. As I see it, a downgrade of U.S. debt will also downgrade AGNC, NLY etc., and should also affect the ratings of some subordinate paper.That, to me, seems to be the biggest risk.
I don't think anyone REALLY believes it will come down to default, but a downgrade IS possible. Remember, there IS no free lunch, and for a dividend of 19%, obviously there is commensurate risk.
I don't worry about short term fluctuations. AGNC just came out with great earnings, and has shown repeatedly that its security selection is superb. Their active portfolio management constantly changes the portfolio composition and realizes gains on securities sales in an effective manner. For now, they seem well positioned. If there is a debt downgrade, then I will reassess.
When the economy truly starts to recover and the Fed starts to unwind its easy interest rate policy, to be safe I will probably sell AGNC, but I don't see that happening soon, and meanwhile I collect the dividend. |
