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NEW YORK (
American Capital Agency Corp.(AGNC - Get Report) was one of big losers in financial stocks Wednesday on concerns the Federal Reserve is nearing the time when it will begin reducing its $85 billion monthly bond-buying program.
AGNC turned downward following the Fed's 2pm announcement outlining criteria for which it would begin to curb its stimulus program. Fed Chairman Ben Bernanke stopped short of issuing a timeline but said that as the economy shows signs of improving, the bank will consider cutting back on the bond-buying that has helped to drive stocks.
AGNC spent much of the day higher on Wednesday until the Federal Open Markets Committee statement. While the
S&P 500 tumbled 1.4% to 1,628.93, AGNC shares were hit especially hard, falling 3.6% to $24.44 on volumes of more than 21.5 million shares, nearly three times the stock's daily three-month average of 8.36 million shares.
AGNC is a mortgage real estate investment trust (REIT), that borrows short-term to buy longer-dated mortgage backed securities (MBS). When interest rates rise, and they did following the Fed's announcement, that harms AGNC's business. That's because borrowing costs go up quickly, while the longer-dated MBS on its balance sheet decline in value.
During a press conference Wednesday, Bernanke said the Fed would consider tapering its bond purchases later this year, while ending mid-2014, according to a note from CRT Capital Group.
Other financial stocks were down virtually across the board, with the widely-followed exchange traded fund,
Financial Select Sector SPDR(XLF) dropping 1.33% to close at $19.60. That is well within the trading range it established May 14 of between $19.33-$20.1.
Written by Dan Freed in New York.