Annaly Capital faces NAV pressure from rising rates and spread compression but preferred shares offer attractive income.

Annaly Capital Management is experiencing potential net asset value (NAV) erosion due to rising interest rates and compression of term spreads, which threaten its net interest spread and dividend capacity. The company’s lower hedge ratios have increased its sensitivity to interest rate changes, worsening the outlook if rates continue to rise or remain high. Despite ongoing equity issuance diluting shareholders, redeployment into higher-yielding assets partially offsets this effect. Among its securities, the fixed-rate Series J preferred shares stand out by offering an 8.875% coupon and potential price gains if long-term rates decline, making them appealing to income-focused investors. Overall, Annaly trades near its historical valuation premium compared to peers, but faces challenges in a rising rate environment.