UPDATE: Nomura Downgrades American Capital Agency Corp. to Neutral Following 1Q13 Earnings Wrap

In a report published Monday, Nomura analyst Bill Carcache downgraded the rating on American Capital Agency Corp.

from Buy to Neutral. In the report, Carcache noted, “The agency mortgage REITs faced a challenging first quarter. Book value declines were a key concern, as the unwinding of QE3 gains continued this quarter. Asset values declined and typical hedging instruments (e.g., swaps, swaptions, and Treasury shorts) were relatively ineffective. Volatility was particularly high this quarter. Spread declines continued across the industry this quarter. That said, the declines in spread were modest relative to the recent past. We're downgrading AGNC and CYS shares to Neutral from Buy based on our view that mortgage market dynamics are increasingly volatile and unpredictable, making for a less attractive risk/reward. Our AGNC downgrade is also based on heightened risk that the mortgage market will once again become complacent with prepayment risk.” American Capital Agency Corp. closed on Friday at $30.66.