Opportunity In The 8.6% Yield: Something For Nothing

It is rare in the financial markets to get something for nothing. This is one of those rare opportunities where, due to poor liquidity and a lack of analyst coverage, market prices can diverge on very similar securities. The mortgage REIT sector exhibits at least a few opportunities where prices become inefficient. So far this year, I’ve seen a few opportunities come up in the preferred shares of larger mortgage REITs. Opportunity disappeared hours or weeks after publication (varies). This company is currently superior in every metric except one, and that one can be easily misunderstood. It offers better call protection, a larger discount to call value, and a larger coupon payment.

In this case I am writing about NYMTO and NYMTP. These are the two preferred shares for New York Mortgage Trust (NASDAQ:NYMT). This kind of divergence in pricing happens occasionally. I have seen this happen with other mortgage rates including in AGNC Investment Corporation (NASDAQ:AGNC) and ARMOUR Residential REIT (NYSE:ARR). More recently I saw it occur with Annaly Capital Management (NYSE:NLY). When even the large mortgage REITs can have this disconnection occurring in their preferred stock, it should be no surprise that New York Mortgage Trust would be ripe for the same issue.

Source: Seeking Alpha
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