RBC Capital analyst Kenneth Lee initiated select names in the Mortgage REIT sector with a "constructive" outlook, saying they offer an opportunity amid a "challenging" interest rate environment. Lee assigned a Buy rating to Annaly Capital Management (NLY) with a $10 price target, Chimera Investment (CIM) with a $21 price target, MFA Financial (MFA) with a $8 price target and Two Harbors Investment (TWO) with a $15 price target, while also starting AGNC Investment (AGNC) at Outperform with a $16 price target. The analyst contends that the housing market conditions remain "favorable" with continued home price appreciation and mortgage delinquencies still being very benign, which benefits the mortgage credit industry. Lee also notes that opportunities for mortgage REITs to deploy capital with attractive risk-adjusted returns still exist and the shares are attractive to yield-oriented investors looking for low betas. Among the names listed, the analyst sees Annaly Capital Management as his "favorite idea" thanks to its diversified investment strategy, while noting that AGNC Investment is constrained by higher relative sensitivity to interest rate risk.

Pre-earnings options volume in AGNC Investment Corp. is normal with puts leading calls 6:5. Implied volatility suggests the market is anticipating a move near 3.8%, or 35c, after results are released. Median move over the past eight quarters is 2.9%.