How one REIT investor prepares to buy MBS as Fed shrinks portfolio

Abstract

Keeping an eye on the Federal Reserve's plan to shrink its portfolio is Byron Boston, the CEO and co-chief investment officer at Dynex Capital. Boston sees the slow process of unwinding the Fed's balance sheet, which officially began Wednesday, as potentially leading to an opportunity for his company, a real estate investment trust. "As the mortgage assets cheapen and provide better returns, then we've got solid capital to deploy," he said in a recent interview. A former Wall Street mortgage-backed securities trader who later helped lay the foundation for investments in Freddie Mac's retained portfolio back in the 1990s, Boston has been working with publicly traded companies since the early 2000s, and is wary of current risks to the housing finance system, but confident in his ability to navigate them knowledgeably. In his interview with this publication, Boston shared his views on the Fed's plan for its portfolio and the current market environment, including what credit risks he is watching most closely, and why he thinks officials at government-related housing agencies should be equally vigilant about them. What follows are further excerpts from the interview with Boston, edited for clarity and length. Byron Boston, chief executive officer and co-chief investment officer of Dynex Capital Inc.Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg.