Annaly Capital (NLY) closed at $18.16 on October 13 and has fallen 19% over six months. The company buys mortgage bundles, mostly backed by the US government, funds them with cheap borrowing, and keeps the spread between its borrowing costs and mortgage income. Debt is 737.54% of equity, yet return on equity is 19.57%, and the government-backed part of the portfolio is said to largely cover default risk. The article warns that leverage magnifies losses if short-term rates rise faster than mortgage rates, narrowing the spread the model depends on. The shares trade at 5.08 times trailing earnings and 6.54 times expected next-year earnings, but at 1.05 times book value, meaning buyers pay slightly above the carrying value of the assets.
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