Kain may face bigger challenges at American Capital when the central bank reduces its monthly bond purchases. The Fed’s intervention in credit markets in the past year coupled with policies put in place by President Barack Obama have expanded opportunities for homeowners to refinance while sending borrowing costs to record lows. That’s forced mortgage REITs to make new investments at some of the lowest ever yields, increasing the risk of losing value when rates do rise.
“The ultimate judgment will be when this market sells off,” said Daniel Furtado, an analyst at Jefferies Group LLC in San Francisco. “When the Fed exits and people start to sell and when mortgage securities lose value.”