NEW YORK (TheStreet) -- "Don't fight the Fed" goes the old bromide, and I couldn't agree more. Testifying before Congress on Wednesday, Federal Reserve Chief Ben Bernanke said that the Fed could decide to sell its mortgage-backed securities (MBS) more slowly than originally anticipated.This is really important insight because, as he intimated on Capitol Hill, the Fed may even decide not to sell its MBS supply and let them mature. You might recall that back in June 2011, the Fed announced that its exit strategy on MBS was to sell them during "the next 3 to 5 years." This would be after the Fed started raising short-term interest rates. Since then the economic conditions have become nastier, so Bernanke is wisely changing his tune. "We haven't done a new review of the exit strategy yet. I think
This compression has caused NLY to increase leverage to generate enough dividends. Its leverage is still not as high as their biggest competitor (market cap of $10.73 billion) which is American Capital Agency ( AGNC), which is being sold off after announcing that it sold 50 million common stock shares. The share offering netted $1.58 billion in gross proceeds, which AGNC said it plans to use to acquire more agency securities and for general corporate purposes. Yesterday, shares dropped 3.5% on 10-times-average daily volume to close around $31.71. Here's a similar chart to the NLY chart above. AGNC data by YCharts
With a yield-to-price of 15.8% and its cash dividend payout ratio so low (technically quite comparable to NLY's payout ratio), yield-chasing investors may prefer AGNC, although we can't rule out an unexpected dividend decrease. Both NLY and AGNC don't report earnings until April 29.