Mortgage REITs outshine TIPS for inflation
The guest argued that short-term Treasury Inflation-Protected Securities fail to reflect true inflation, making mortgage REITs that hold government-insured mortgages a superior yield alternative.
The argument
The guest noted that TIPS are pricing in a 3% inflation rate which he believes is too low, whereas mortgage REITs like Annaly Capital Management offer yields that better compensate for actual inflation.
The thesis, stress-tested
✓ What validates it
- ✓Annaly maintaining or increasing its dividend payout
- ✓Short-term TIPS underperforming mortgage REITs over a 12-month horizon
▸ Risks discussed
- ▸Prepayment risk on underlying mortgages
- ▸Interest rate volatility affecting REIT book values
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