Two Harbors Investment Corp. heads into its April 29 Q1 print with short sellers in full retreat — a striking reversal for a mortgage REIT that entered the month as one of the more contested names in its peer group.
The unwind has been dramatic. Short interest has more than halved over the past month, falling 44% to roughly 4% of the free float. Most of that move came fast: positions dropped 32% in a single week as shorts covered ahead of the release. At the start of April, SI ran close to 9.7 million shares; it now stands near 4.2 million. The borrow market reflects the same easing. Cost to borrow is a modest 0.6%, and availability remains well within normal ranges, offering no constraint on fresh positioning in either direction. The short score has also declined sharply, dropping from above 46 in mid-April to 37.5 — well below its recent peak and drifting toward the lower half of the range.
Options positioning tells a slightly different story, adding a note of caution to the otherwise bullish short-cover narrative. The put/call ratio has climbed to 1.45, above its 20-day average of 1.35, though the z-score of 0.66 keeps it well short of an extreme reading. What is notable is the directional shift: through most of March the PCR sat below 1.0, reflecting net call demand; since early April it has consistently run above 1.3, suggesting investors have rotated toward hedging even as shorts covered. The stock itself is down 1.9% over the past month to $11.01, recovering 0.3% on the day but still carrying the residual drag from a softer macro environment for rate-sensitive names.
The analyst community has become visibly more cautious. JP Morgan's Richard Shane downgraded to Underweight in mid-April, cutting the target from $12.50 to $11.00 — a step that puts the firm's view just below the current price. Compass Point also downgraded in late March, moving to Neutral from Buy. The consensus has settled at Hold across eight analysts, with the mean target near $11.08, barely above where the stock trades today. That tight gap between price and target leaves the Street with little room to manoeuvre. The bear case centres on the EAD per share shortfall in recent quarters and the risk that rate volatility compresses the spread between agency MBS yields and financing costs. Bulls point to a book value per share last reported at $14.66, continued growth in the agency MBS portfolio to $8.6 billion, and an economic return of 4.4% that suggests the underlying business is generating income even if reported earnings metrics disappoint. Peer mREITs including AGNC and NLY have posted weekly gains of 3.1% and 0.8% respectively, suggesting the sector tone into earnings is broadly constructive.
Today's print is therefore a test of whether Two Harbors can narrow the persistent gap between its trading price and reported book value, and whether its EAD trajectory can provide enough support for management to sustain the dividend at a level that justifies the stock's 12.2% implied yield.
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