This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Annaly Shareholders Could Be in for a Treat

Stocks in this article: NLY

NEW YORK (TheStreet) -- The cracks which appeared in overseas equities markets and a multitude of peripheral carry-trade currencies blow-ups presages trouble and a reversion back to the so-called 'risk-off' trade. Therefore, and as per my model, Annaly Capital Management (NLY) is poised to benefit from the anticipated drop in yield of the bellwether 10-year Treasury note.

Though there are several facets to Annaly's fundamental analysis, such as the steepness (and rate of change) of the yield curve, and management's ability to negotiate the curve, et cetera, none is more important to the outlook for the price of Annaly than the yield of the 10-year Treasury note.

We must assume, unless shown otherwise, management is competent in their function to execute their model. There is nothing esoteric to the Annaly model; it becomes a matter of execution and a 'bet' by investors on a continued Fed's interest rate policy of a low-yield environment.

In my article of Jan. 8, I outlined my thesis for a bullish case in the share price of Annaly, which included a retreat from the 3% to 3.125% Maginot Line stamped as the Fed's demarcation in the rate of the 10-year Treasury note.

A rebound in prices (lower yields) from the line indicates a Fed still in control of interest rates; and a sustained move above the line indicates a Fed that's lost control of rates, with the latter instance leaving investors of Annaly vulnerable to a loss of asset value and/or dividend payout.

Moreover, I inferred that the Fed and the Bank of Japan would coordinate swaps activity between the two central banks during the $10-billion-per-month 'taper' period.

Though I've received email from readers refuting the notion of Japan's ability to cooperate with the Fed, below, we can see the chart showing the Bank of Japan's rapid increase in holdings of Treasuries as the yield on the 10-year moved back up to 2.5% from record lows reached in March/April.

From the graph, we can see the Bank of Japan trying to keep pace with the decline in the U.S. dollar by selling yen and buying dollars.

At the close of June, Bank of Japan holdings of Treasuries amounted to $1.083 billion. By the end of November, BOJ holdings of Treasuries totaled $1.186 billion, an increase of 9.5%, or a CAGR of 19.9%.

Not only did the Bank of Japan demonstrate its willingness to buy Treasuries during the 10-year note sell-off, it bought at a rate of $20.6 billion each month throughout the five months of the shopping spree, more than double the $10-billion-per-month Fed 'taper'.

Though NLY had bottomed out in anticipation of the December FOMC meeting, shareholders suffered during the rise in interest rates that began in May; but central bank ammunition is on the way to reverse the damage, enough to lift share prices higher from today's $10.42.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs