Annaly (NLY) Q2 2025 Earnings Call Transcript

NLY is doing the right thing for this part of the mortgage cycle: leaning into agency MBS while keeping leverage modest and preserving dry powder. The second-order winner here is not just the REIT itself, but the securitization/funding stack around it—term repo, non-mark-to-market facilities, and servicing partners all become more valuable when management can add assets without being forced sellers in a volatility spike. That makes NLY more resilient than peers that depend on mark-to-market leverage to manufacture dividend coverage.

The subtle bullish signal is that credit is being run with tighter standards even as housing softens, which should keep realized losses muted if home prices grind lower over the next 2-3 quarters. The risk is not defaults; it is spread compression plus lower prepay protection if rates fall faster than expected, which would pressure the carry profile on both agency and MSR. In other words, the stock is more exposed to a benign-rates / no-volatility scenario than to a mild housing downturn.

Consensus may be underestimating how much of NLY’s current earnings power is a function of market structure, not just rate direction. If bank and overseas demand for agency paper reactivates into Fed cuts, the company gets a double tailwind: tighter spreads and better asset marks, which can support book value even if leverage stays unchanged. The contrarian risk is that the market starts treating the dividend as “covered” and over-assigns durability to EAD, when in reality the margin of safety still depends on financing conditions staying orderly.