Yesterday NLY closed at $16.84, 1.9% premium over 4Q BV of $16.52.

NLY’s annualized interest rate spread during the 3Q increased 18 basis points over 2Q. Quarter end interest rate spread improved 27 basis points over the prior qtr end.. This signifies, IMO, a further increase in the spread and earnings for 4Q – hard to believe!
Yesterday “The Fed also said it would buy about $175 billion of debt issued by government-backed mortgage finance agencies, less than the $200 billion maximum it had originally allotted, citing limited availability.” You can find this quote in the following article: http://finance.yahoo.com/news/Fed-sees-r...

So, for the next reporting period, the 4Q results should be marginally better than the 3Q .

NLY’s book value will increase as it has each of the past several quarters, by about 92 cents. The 92 cent increase in BV is justified by the Fed maintaining status quo. I’m also assuming if there is limited availability from the GSE’s this will be reflected in higher portfolio values.

I’m also penciling in core earnings of 75 cents for 4Q. For the past seven quarters NLY has been providing between 14.5% and 16.5% ROE. NLY’s interest rate spread is continuing to improve although marginally. There should not be any significant change in the yield curve through the end of the quarter. Leverage is vertually flat

Based on my assumptions, NLY, IMO, is trading below its current minimum fair market value as comprised of the following:

BV end of Q3 -- $ 16.52
4Q Portfolio appreciation - $0.92
4Q Core earnings - $0.75
Premium to BV – 1.9% today

Add a premium to book value of $0.34 and NLY’s 4Q fair market value (prior to Dec’s ex-div date) should be $18.53. This means NLY is trading at a $1.71 discount ($16.82-$18.47), today, almost 10% lower from what it will be or should be trading by quarter end. I’m patient enough to wait for my $1.71, how about you?

foot note:

(*)AGNC – 13.3%
(*)CMO – 8.89%
(*)HTS – 5.44%
(*)NLY – 1.9%

(*)Percentage by which the stock closed over its BV today.

Why does NLY have the lowest multiple being the “best of breed”?