Book value is a simple financial construct in which you take the balance sheet figures for assets and subtract liabilities. What’s left, if there is anything, is a company’s book value. The math can get fairly complicated for some businesses when you have to take into consideration things like the value of brand names. However, other businesses, like mortgage real estate investment trusts (REITs), are relatively simple.

For example, the book value of AGNC Investment (NASDAQ: AGNC) and Annaly Capital (NYSE: NLY) is essentially their portfolios of mortgage securities minus the debt they have taken on. But you don’t even have to do any math to figure it out because both of these mREITs tell you their per-share tangible book value each quarter. And they were trading near the second-quarter value each of them presented, but that changed when they announced third-quarter results. Here’s what you need to know.

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Things changed quickly for Annaly and AGNC

At the end of the second quarter, Annaly Capital reported its tangible net book value per share as $20.15, up from $19.82 at the end of the first quarter and $18.45 in the year-ago quarter. AGNC Investment’s tangible book value per share was $8.58, up from $8.38 in the first quarter and $7.81 in the same quarter of 2025.

Then the stock prices of these two REITs started to fall sharply. Over the past three months, Annaly’s share price has dropped by around 18%, and AGNC’s has declined by over 16%. That left their share prices hovering around their second-quarter book value per share figures. On the surface, that sounds like an opportunity, but you can’t overlook the broader context.

NLY data by YCharts

Bonds and interest rates move in opposite directions

The big picture is that interest rates and bond yields have started to increase. There are numerous reasons for this, but a major one is the high inflation the economy is facing today. To be fair, the entire REIT sector has been dealing with this same interest rate headwind. However, the impact is particularly important for mREITs, since they don’t own physical properties.

Mortgage REITs own mortgages that are pooled into bond-like securities. When interest rates rise, bond values fall. The drop in the prices of AGNC and Annaly reflected investors pricing in the changing rate and yield dynamics. Prior to each company reporting its third-quarter earnings, its share price was either below or very close to its second-quarter book value.

However, when the third-quarter tangible book value per share figures came out, they showed a material drop from the second quarter. Annaly’s book value had fallen to $17.86, down $2.29 in a single quarter. AGNC’s book value dropped to $7.13, a decline of $1.45 in a single quarter. That amounts to drops of 11% and nearly 17%, respectively. Those are dramatic changes that highlight the risk of investing in mREITs and come pretty close to the stock price declines each witnessed.

There’s nothing wrong with either of these mREITs

To be fair, Annaly and AGNC are both well-respected mREITs with solid operating histories. And their 16% dividend yields will likely look very enticing to dividend lovers right now. But the high dividend yields here come with material risks you need to fully understand, or you could end up with a shock like the massive drop in book value between the second and third quarters. Mortgage REITs are really only appropriate for investors who are willing to put in a little extra legwork, and that doesn’t even get into the issue of dividend volatility, which has been material for both of these mREITs.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

What Is Book Value? 2 Mortgage REIT Stocks That Were Trading Close to It Until They Weren’t was originally published by The Motley Fool