PMT

PMT is a externally-managed mortgage REIT whose investment thesis lives or dies by interest-rate direction and MBS spreads. The 10-K is explicit that 'higher interest rates and inflationary pressures in 2024 and 2025 have constrained mortgage origination and refinancing activity' and that Fed balance-sheet runoff 'may result in higher interest rate volatility and wider mortgage-backed security spreads that could negatively impact our investments.' That macro headwind is showing up in the numbers: net income fell from $200M in FY2023 to $161M in FY2024 to $128M in FY2025 (-20.6% YoY), and diluted EPS dropped -27.7% to $0.99. This is a business clearly past its cyclical peak.

Valuation is the offset. At $10.59, PMT trades at 10.7x trailing EPS and roughly 0.49x book (equity $1.89B / 87M shares ≈ $21.7 BVPS), with a dividend of $139M against 87M shares — roughly $1.60/share, a ~15% indicated yield well covered by the $0.99 EPS only if you treat the spread between paid dividend and earned EPS as return of capital (note retained earnings are -$583M and worsening). The market is pricing in further deterioration, which is rational given the trajectory.