With Kevin Warsh signaling a tougher Federal Reserve stance, real Treasury yields at multi year highs, and mortgage backed securities spreads still wide, inflation protected fixed income is back in the spotlight for many investors. When policy rates are expected to stay higher and growth worries are reflected in a flatter yield curve, the way companies are exposed to TIPS and agency MBS can matter a lot for portfolio risk. This article walks through three stocks that look relatively well positioned against these forces, explaining how each one is tied to the current news backdrop and what that could mean for investors.

ARMOUR Residential REIT (ARR)

Overview: ARMOUR Residential REIT invests in pools of home loans that are packaged into mortgage backed securities, mainly those backed or guaranteed by US government related agencies, to generate income for shareholders as a real estate investment trust.

Operations: ARMOUR Residential REIT generates about US$297.5 million in revenue from mortgage REIT activities entirely within the United States.

Market Cap: US$2.2b

ARR is closely connected to the current debate around higher real yields and wide mortgage spreads, because its portfolio is concentrated in agency MBS that carry government backing but still price in extra compensation for rate and prepayment risk. Some investors may focus on ARMOUR Residential REIT for its exposure to this niche and its high dividend yield. However, Q1 2026 results included a net loss of US$54.85 million and the payout is not well covered by earnings or cash flow, which raises questions about the sustainability of current income levels. That tension among income potential, funding risk and book value sensitivity is a key aspect of the investment picture.

ARMOUR Residential REIT’s high-yield story is only half the picture. The real tension is how its income, funding, and book value risks fit together in the 4 key rewards and 3 important warning signs (3 are major!)

Two Harbors Investment (TWO)

Overview: Two Harbors Investment is a mortgage REIT that owns and finances pools of agency and non agency residential mortgage backed securities and mortgage servicing rights, using these assets to generate income from US housing and interest rate markets.

Operations: Two Harbors Investment generates about US$493.8 million in revenue from its real estate investment trust activities, all within the United States.

Market Cap: US$1.3b

Two Harbors Investment provides concentrated exposure to mortgage servicing rights and agency RMBS at a time when real yields are high, the yield curve is flatter, and MBS spreads remain wide. Its own management has been highlighting these factors on recent calls. Forecasts indicate very strong earnings growth and a path to profitability within three years, yet the stock trades on a lower P/S multiple than many mortgage REIT peers. Set against that, current losses, heavy reliance on wholesale borrowing, and a near 11% dividend that is not covered by earnings all point to meaningful risk if funding costs stay elevated. That tension is central to why some income focused investors who can handle volatility may consider this stock for closer review.

Two Harbors Investment is being priced like a problem stock, while earnings forecasts point in a very different direction, and the full story sits inside the analyst forecasts for Two Harbors Investment

Ellington Financial (EFC)

Overview: Ellington Financial is a mortgage focused REIT that acquires and manages a wide range of mortgage related, consumer, corporate and other fixed income assets in the US, from agency and non agency RMBS and CMBS to consumer loans, collateralized loan obligations and reverse mortgages, aiming to turn complex credit exposures into distributable income.

Operations: Ellington Financial generates most of its revenue from the Longbridge segment at about US$254.6 million and the Investment Portfolio segment at about US$190.0 million, partly offset by a US$22.2 million loss in Corporate/Other activities.

Market Cap: US$1.7b

Ellington Financial sits at the crossroads of high real yields, a flatter curve and wide MBS spreads, with a business that is heavily tied to agency RMBS and other structured income assets that many investors look to when building inflation aware portfolios. Margins are currently strong at about 45.7%, and the stock trades on a lower P/E than many US mortgage REIT peers. This has helped some investors frame it as a value oriented income idea, even after a recent downgrade on premium pricing concerns. Against that, the double digit dividend yield is not well covered, debt is not well supported by operating cash flow and shareholders have seen substantial dilution, so the real question is how these rewards stack up against the funding and payout risks over time.

Ellington Financial’s strong margins and lower P/E could be masking a very different risk reward mix than headline yield suggests. The real twist sits inside the 4 key rewards and 3 important warning signs (3 are major!)

The three stocks covered here are just a starting point, and the full Inflation-Protected Fixed Income (TIPS and Agency MBS) screener surfaces 11 more companies with similarly structured inflation protected fixed income opportunities tied to TIPS, agency MBS and balance sheet strength. Use Simply Wall St to identify, analyze and filter for the specific catalysts and narratives discussed here so you can focus on the ideas that best fit your own risk and income goals.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.