Annaly: I Was Too Cautious On The Mix Shift, And Q2 Should Prove It

I was too cautious in February: the Agency-to-credit/MSR rotation I called defensive is turning out additive, and Q1 numbers already show it working. The rebuilt book bends less: at 44% non-Agency, MSR gains as rates rise and offsets Agency drag, lowering rate beta into a higher-for-longer regime. Cheaper than it should be: Annaly trades at ~1.18x book, a discount to more Agency-heavy AGNC at ~1.28x, despite the better-aligned mix. Q2 is the catalyst: a covered $0.75 dividend and resilient book would validate the shift, with a ~12% yield paying you to wait.

When I covered Annaly Capital Management (NLY) in February, I had rated it as a Hold - primarily a zone to accumulate patiently and rely on yields to do the heavy lifting.