In our reports on American Capital Agency (AGNC) and other mREITs, we make it a point to approach the company and the sector with the proper perspective. We have moderated our enthusiasm on AGNC a bit after it released its secondary offering on July 17 because we felt that its 17% premium to book value was a bit too much relative to what we would like to see from the company, especially in light of declining spread income and an increase in its otherwise low projected CPR prepayment rates (AGNC’s projected prepayment rates increased from 9% in Q1 2012 to12% in Q2 2012). However, it is remains one of our three favorite mREITs. AGNC’s Q2 2012 results were a far cry from the results it achieved in 2011 and Q1 2012, but we can still expect 10-14% dividend yields from this high quality, mREIT industry leader.

Having said that, we were actually happy to see Macquarie’s downgrade of AGNC on Wednesday from an outperform rating to a neutral rating because, in our opinion, we felt that some pull-back in the company’s shares was due. Before the secondary public offering was released, AGNC’s shares were trading at a premium to book value of over 17%. As much respect as we have for Gary Kain and his team at AGNC, we didn’t feel that a 17% premium to book value was warranted.

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