Annaly Capital Management Rides Out Turbulent Q3 Amid Rising Rates and Volatility
Analyzing its recent Q3 2026 earnings conference call, Annaly Capital Management displayed resilience as it navigated a challenging third quarter marked by heavy rate hikes and market volatility.
The U.S. economy remains resilient thanks to AI-driven investments and healthy consumption, however inflation remains above the Fed's target due in part to higher energy prices, according to David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer.
Faced with an 82-basis-point surge in the 10-year Treasury yield to multi-decade highs, Annaly's portfolio delivered a negative 7.6% economic return for the quarter but maintained durable earnings of $0.80 per share, exceeding its dividend, and modestly increased capital markets leverage at 5.9 turns.
Against the backdrop of rate volatility reaching its highest levels since the initial tariff announcement a year and a half ago, which drove MBS spreads wider and led to meaningful underperformance in Agency MBS, Annaly's balance sheet delivered a strong performance with a modest increase in capital markets leverage.
The company announced the redemption of its $443 million series I floating rate preferred stock during the third quarter, maintaining a conservative capital structure. In addition, they issued $757 million in common equity on the quarter through their ATM program to fund the preferred redemption as well as invest across their portfolios.
Annaly's agency portfolio decreased modestly to $92 billion in market value, representing 55% of the firm's capital, while they added approximately $2 billion notional in MBS on the quarter. Despite facing challenges during Q3, Annaly Capital Management demonstrated its ability to navigate turbulent market conditions.
The company maintained a strong position amidst rising rates and volatility by being positioned for rate and spread volatility with conservative duration exposure and historically low leverage heading into the quarter, ultimately reflecting positively on their investment strategy.
Annaly's recent Q3 performance was a testament to its adaptability and ability to stay ahead of market trends. As the company continues to navigate this challenging landscape, it remains well-equipped to face whatever comes next.
