Update: Jefferies Raising Price Target On American Capital Agency

Jefferies & Co. is out with a research report on American Capital Agency AGNC and is raising its price target to $30 from $29 after it reported earnings. It has a Hold rating on shares. In a note to clients, Jefferies & Co. writes, "AGNC grew their portfolio to $40BN during 2Q11 which represented a 43% increase Q/Q and a 200% increase YTD. We note AGNC's portfolio at 2Q11 was 87% invested in fixed-rate securities, up 5% Q/Q. The heavy weight fixed rate strategy appears to be a consistent theme for AGNC and thus management seems to be more comfortable exposing the portfolio to higher yielding longer duration paper. To accompany the longer duration profile, management has increased longer-term interest rate swaps and notional balances of interest rate swaptions. Consistent with 1Q11, the 2Q11 duration gap was 0.6 years, compared to the year ago gap of 0.7 years. A year-ago, at 2Q10, the asset duration was 1.7 compared to 2Q11 of 3.2 and the liability duration was -1.0 compared to 2Q11 of -2.5. As such, we view the combination of the company's hedging strategy and their consistent Q/Q lower duration gap as a preemptive move to protect book value from higher long-term rates." Shares of AGNC closed at $28.39 yesterday.