管理層發言
Thank you all for joining AGNC Investment Corp. Second Quarter 2025 Earnings Call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecasts due to the impact of many factors beyond the control of AGNC. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in AGNC's periodic reports filed with the Securities and Exchange Commission.
Copies are available on the SEC's website at sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law. Participants on the call include Peter Federico, President, Chief Executive Officer and Chief Investment Officer; Bernie Bell, Executive Vice President and Chief Financial Officer; and Sean Reid, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.
Good morning, and thank you all for joining our second quarter earnings call. Following the administration's tariff announcement in early April, elevated governmental policy risk caused investor sentiment to turn sharply negative and financial markets to reassess the macroeconomic and monetary policy outlook. After a sharp repricing in April, most markets retraced their early period losses and ended the quarter at better valuation levels. The performance of Agency mortgage-backed securities relative to benchmark interest rates, however, was notably weaker quarter-over-quarter. As a result of this underperformance, AGNC's economic return for the second quarter was negative 1%. During the first three weeks of April, when the financial market stress was most pronounced, the yield on the 10-year treasury fluctuated by more than 100 basis points and the S&P 500 Stock Index declined by 12%. This volatility and macroeconomic uncertainty adversely impacted Agency mortgage-backed securities with spreads to treasury and swap rates widening significantly.
A primary focus of AGNC's risk management framework is maintaining sufficient liquidity to withstand episodes of significant financial market stress. One important measure of this capacity is the percentage of equity that we hold in unencumbered cash and Agency mortgage-backed securities, which are available to meet margin calls in the normal course of business. This focus enabled us to begin the second quarter with a strong liquidity position and to navigate the financial market volatility without issue and, importantly, without selling assets. Moreover, we were able to take advantage of the wider MBS spread environment by raising accretive capital during the quarter and opportunistically deploying a portion of that capital in attractively priced assets. Over the last two months of the quarter, most financial markets retraced the April losses, and in some cases, set new record highs. For example, the S&P 500 Index rallied 25% from the April low and ended the quarter about 10% higher.
Investment-grade and high-yield debt also performed well with spreads tightening 10 and 50 basis points, respectively. The one notable performance exception was Agency mortgage-backed securities as the current coupon spread to a blend of treasury and swap benchmarks ended the quarter seven and 14 basis points wider, respectively. Although the Fed and treasury have indicated that beneficial regulatory reforms are forthcoming, bank demand for MBS still appears to be constrained. Similarly, foreign investor demand may be hindered by U.S. dollar weakness and geopolitical risk. Looking ahead, we expect banks and foreign demand for Agency MBS to grow. In addition, as we enter the third quarter, the seasonal supply pattern for MBS issuance should improve. We expect the net supply of new MBS to be about $200 billion this year, which is the low end of most forecasts. Since quarter end, MBS spreads have tightened slightly and are showing signs of stabilization.
As a levered and hedged investor in Agency mortgage-backed securities, AGNC's return profile is most favorable in environments in which mortgage spreads are wide and stable. Our favorable outlook for Agency MBS was further improved in the second quarter by the very positive message from key decision-makers related to the potential recapitalization and release from conservatorship of the GSEs. The White House, the Treasury Department, and FHFA affirmed the government's commitment to maintaining the implicit guarantee for Agency MBS and also indicated that they are taking a do-no-harm approach to GSE reform. Specifically, President Trump made an unprecedented statement in late May regarding the GSEs and the ongoing role of the government in the housing finance system. He said, "Our great mortgage agencies, Fannie Mae and Freddie Mac, provide a vital service to our nation helping hardworking Americans reach the American dream of homeownership.
I am working on taking these amazing companies public, but I want to be clear the U.S. government will keep its implicit guarantees." Treasury Secretary Bessent also made several important statements regarding the GSEs during the quarter, the one that stood out the most to us was when he said, "The one requirement of this privatization is that they are privatized in such a way that mortgage spreads do not widen." And in fact, is there a way that we can make the spread between the risk-free rate and mortgages tighten as Freddie Mac and Fannie Mae are privatized? Finally, Director Pulte weighed in with similar positive statements saying, "Our number one thing is to do no harm and keep the implicit guarantees intact. We cannot have any disruption to the mortgage market. There cannot be any upward pressure on the mortgage rate, and I am very confident that the mortgage market will be safer and sounder as a result of any option that the President takes."
These statements individually and collectively clarify the administration's approach and, more importantly, should provide investors greater confidence that the credit quality of the $8 trillion of outstanding Agency mortgage-backed securities as it is understood to be today will not be impaired by actions associated with privatization. In fact, given the explicit statement of credit support made by the President of the United States that the implicit guarantee of Agency MBS will be preserved, investors could reasonably conclude that the credit quality of the outstanding stock of Agency mortgage-backed securities has never been stronger. These statements also make it clear that maintaining stability in the mortgage market and lowering mortgage costs are two important guiding principles of GSE reform. This is a very positive development that should lead to tighter mortgage spreads over time. With that, I'll now turn the call over to our Chief Financial Officer, Bernice Bell, to discuss our financial results in greater detail.
Thank you, Peter. For the second quarter, AGNC reported a comprehensive loss of $0.13 per common share. Our economic return on tangible common equity was negative 1%, consisting of $0.36 of dividends declared per common share and a $0.44 decline in tangible net book value per share as mortgage spreads ended the quarter moderately wider. As of late last week, our tangible net book value per common share was up about 1% for July after deducting our monthly dividend accrual. Quarter end leverage increased slightly to 7.6x tangible equity compared to 7.5x at the end of Q1. Average leverage for the quarter rose to 7.5x from 7.3x in the prior quarter. As of quarter end, our liquidity position totaled $6.4 billion in cash and unencumbered Agency MBS, representing 65% of tangible equity, up from 63% as of the prior quarter. As Peter noted, we were able to navigate the substantial financial market volatility in April with our portfolio intact as a result of our risk management positioning and ample liquidity entering that period.
Additionally, during the quarter, we opportunistically raised just under $800 million of common equity through our at-the-market offering program at a significant premium to tangible net book value. As of quarter end, we had deployed slightly less than half of the proceeds, and we have continued to deploy the remaining capital post quarter end. In utilizing the ATM, we attempt to maximize both the accretion benefit associated with the stock issuance premium and the investment returns on acquired assets. However, the optimal timing for stock issuances and capital deployment may not fully align. As a result, our investment of the new capital may lag the issuance as it did this quarter as we evaluate market conditions and wait for favorable entry points. Net spread and dollar roll income declined $0.06 to $0.38 per common share for the quarter, primarily due to the timing of deployment of the new capital raised over the quarter with moderately higher swap costs also contributing to the decline.
Our net interest rate spread decreased 11 basis points to 201 basis points for the quarter, largely due to higher swap costs. Our treasury-based hedges contributed additional net spread income of approximately $0.01 per share for the quarter, which is not reflected in our reported net spread and dollar roll income. Lastly, the average projected life CPR of our portfolio declined to 7.8% at quarter end from 8.3% as of Q1, consistent with higher mortgage rates. Actual CPRs averaged 8.7% for the quarter, up from 7% in the prior quarter. And with that, I'll now turn the call back over to Peter for his concluding remarks.
Thank you, Bernie. I'll provide a brief review of our portfolio before taking your questions. Trade, fiscal and monetary policy uncertainty caused Agency MBS spreads to widen across the coupon stack with higher coupon MBS performing slightly better than lower coupon MBS. MBS performance also varied considerably by hedge type and maturity as the yield curve steepened significantly during the quarter and swap spreads tightened 5 to 10 basis points. As a result, MBS hedged with longer-dated treasury-based hedges performed materially better than MBS hedged with short- and intermediate-term swap-based hedges. Our asset portfolio totaled $82 billion at quarter end, up about $3.5 billion from the prior quarter. The mortgages that we added were largely higher coupon specified pools with favorable prepayment characteristics. As a result, the percentage of our assets with some form of positive prepayment attribute increased to 81%.
Our aggregate TBA position remained relatively stable at about $8 billion, consistent with our preference for specified pools in the current environment. With both our pool and TBA activity concentrated in higher coupons, the weighted average coupon of our asset portfolio increased to 5.13% during the quarter. The notional balance of our hedge portfolio increased to $65.5 billion at quarter end. In duration dollar terms, our hedge portfolio consisted of 46% treasury-based hedges and 54% swap-based hedges. In summary, despite the second quarter volatility and elevated geopolitical and government policy risk that still remains, we continue to have a very positive outlook for Agency mortgage-backed securities. In fact, we believe the outlook actually improved in the second quarter due to four factors. First, MBS supply appears to be manageable as seasonality factors turn more favorable and the mortgage rate remains high.
Second, the demand for MBS appears poised to grow as a result of anticipated regulatory changes and relative value attractiveness. Third, agency spreads appear to be stabilizing at historically cheap levels. And lastly, key policymakers appear to be taking a cautious do-no-harm approach to GSE reform while reaffirming the government's ongoing role in the housing finance system. Collectively, we believe these positive developments create a very favorable investment outlook for Agency mortgage-backed securities as a fixed income asset class. With that, we'll now open the call up to your questions.
分析師問答
The first question comes from Doug Harter with UBS.
Just kind of digging into the last comments you made about the attractive environment. As you look at that environment and you look to continue to take advantage of that, do you think that comes in the form of looking to raise additional capital? Or is increasing leverage from kind of this area where you've been for the past couple of quarters a consideration as well?
Sure. Well, I appreciate that question. And as you mentioned, our outlook really is favorable as we sort of start the second half of the year given some of the developments of the second quarter, particularly related to the GSEs. I think it sets up a strong backdrop for Agency mortgage-backed securities. But what we're seeing now is really some stabilization. And I do expect spreads to move sort of gradually tighter, but it doesn't seem to be a big catalyst for them to move sharply lower over the near term. And I say that because that's important. As Bernie mentioned, we've sort of taken a patient measured approach to the deployment of capital that we raised in the second quarter. She mentioned that we deployed a little less than half of that. So from that perspective, we still have capacity to deploy those proceeds at what are still very attractive levels today, Agency mortgage-backed securities current coupon to a blend of swap rates is at about 200 basis points, which is about the upper end of the range over the last four years.
And then, of course, to the extent that we have capacity at some point during the quarter to raise accretive capital and deploy those proceeds, we would certainly look to do that as well as a way of generating incremental value for our shareholders. But we feel like we're in a good position now to deploy capital at a sort of a patient measured pace. I think these opportunities are going to be with us for a little while, but we could certainly also have the capacity to operate with slightly higher leverage. Bernie mentioned that our unencumbered cash position at the end of the quarter was at $6.4 billion or 65%. That's 2% higher actually than it was at the end of the first quarter. So despite all the volatility, despite growing our portfolio by $3.5 billion, we still have actually more unencumbered cash as a percentage of our equity at the end of the second quarter. So we're in a good position, Doug, essentially to do everything that you just described.
We'll let the market dictate the pace of that and then the levers that we pull as we see mortgage spreads develop. We see the backdrop of some of this still ongoing political uncertainty get resolved, which hopefully will get resolved over the next couple of weeks with respect to government policy and tariffs. And then, of course, we have a little bit of uncertainty still ongoing with monetary policy, but those should be resolved really over the next month or two. So we have a lot of capacity and a lot of flexibility to be opportunistic in this environment.
The next question comes from Crispin Love with Piper Sandler.
Peter, can you speak to your views on the core earnings trajectory and what that means for the dividend level? Core returns are high, spreads are pretty wide, swaps continue to roll off. But curious what you view to be the run rate for earnings and core returns over the near to intermediate term?
We've discussed our net spread and dollar roll income for several quarters, noting its adjustment to better align with our portfolio's economics. There are many factors to consider regarding net spread and dollar roll income, especially related to asset yield accounting and hedge costs. This measure reflects earnings for the current period and does not necessarily indicate the long-term earnings potential of our portfolio, so it should be evaluated accordingly. That being said, it has aligned more closely with our current portfolio economics. For instance, the $0.38 return on equity is around 19.5%, give or take. Mortgage valuations currently show that this figure corresponds to about 160 basis points when comparing current coupon to treasury rates, and about 200 basis points to swap rates. This suggests an 180 basis point return spread in the current market. Given our leverage, this translates to approximately 19% return on equity for new investments.
I believe the present environment suggests returns are in the high teens, between 18% and 20%, which corresponds with our net spread and dollar roll income. However, we may experience volatility from quarter to quarter. As Bernie indicated, our net spread fell last quarter due to the slow deployment of capital we raised. As we invest these funds, it should alleviate the drag we observed in the second quarter. Still, we will continue to see some pressure from our swap hedges rolling off. About $5 billion rolled off in the second quarter, and we've replaced $2.3 billion of that. Over time, our swap costs are expected to increase, although I anticipate our repo costs will decrease, especially as the Fed reenters an easing phase. Our asset yields are also expected to rise gradually, as they remain below market levels. In summary, our net spread and dollar roll income should generally stay within the range we are currently seeing, possibly in the high $0.30s to low to mid-$0.40s. I hope this answers your question.
Absolutely. No, that was very helpful, Peter. And then just following up on Doug's issuance question and comments you've made about deployment. You raised accretive capital, deployed about 50% of that in the second quarter. I believe that was a comment or it might be 50% to date. But can you just share where you stand today? How much more have you deployed since quarter end? And then just where are the best opportunities, coupons, investments, et cetera? And then just given the outsized issuance in the second quarter, would you expect issuance in the third to come down versus historical levels?
Yes. I'll start with that question first and then we can go back. You provided a lot of information. It's going to be about taking opportunities as they arise, and I believe we are in a solid position to be patient regarding our capital raising efforts. We see great potential in the second quarter, especially due to significant market volatility, which allowed us to raise capital in a beneficial way. This provided us with extra liquidity, enabling us to handle any further disruptions and also to invest those proceeds. However, I wouldn’t say that the second quarter is a reflection of what to expect in future quarters; we will need to assess each situation individually as it arises. Please repeat the first part of your question for me.
Yes. So you talked about deploying 50% of the capital. Just the timing of that, was that in the second quarter or to date? And I'm just curious where you are right now...
Yes, according to Bernie, it was in the second quarter, but she did mention that we have continued to deploy. We purchased about $1 billion worth of mortgages earlier this month. We still like the market and are deploying capital at a disciplined pace. As previously mentioned, we continue to favor upper coupons, particularly in specified pools with higher coupons in the 5% to 6% range, as well as specified pools with favorable prepayment characteristics. We appreciate the yield profile there and the prepayment protection that certain characteristics can provide.
The next question comes from Trevor Cranston with Citizens JMP.
Another question on the capital raising. Peter, obviously, for the last several quarters, you guys have been able to do a decent amount at pretty accretive levels. And obviously, there's a lot of benefits to being able to issue so accretively. I guess big picture, can you kind of give us an update on your thoughts as to how you think about kind of the optimal size of the company and particularly if you continue to be able to issue accretively for the foreseeable future?
Yes, that's a great question, and we've discussed it periodically. I want to emphasize that we're not growing just for the sake of it. We're growing because we can raise capital in a way that benefits our existing shareholders and supports our dividend. As long as we can do that, we will look to capitalize on that opportunity. Additionally, there are significant advantages to our scale. For example, our operating costs last quarter were 111 basis points, making us one of the lowest in the industry, which is compelling. Furthermore, there is considerable liquidity in our stock, which is valuable for our shareholders. We have concentrated our portfolio in agency or agency-like securities, allowing investors to easily purchase our stock for fixed income exposure in a very liquid manner. Our common equity exceeds $8 billion, providing ample liquidity. The growth in our market cap also makes us more visible to indices, which could add us as we grow.
However, we are aware of market capacity constraints related to size. The liquidity in the fixed income market today is not as robust as it was 10 or 15 years ago before the financial crisis. We remain mindful of our asset portfolio size and the ability to transact in both the hedge and asset markets. We are working to find the ideal balance among these factors, and while there are many benefits to our size and scale, we also recognize that there is a limit to how large we can become.
The next question comes from Bose George with KBW.
First, just given the level of swap spreads, how do you see the appropriate balance between swap hedges and treasury futures? And then when you gave the ROE number at 19% plus, does that reflect the mix that you guys currently have in the portfolio?
When I calculated the ROE, I arrived at 180 basis points using a 50-50 blend, which we believe is the right long-term mix for us due to the diversification benefits of an equal mix of treasuries and swaps. However, we are currently a bit more weighted towards swaps overall. In the second quarter, around two-thirds of our hedges were swap-based. Moving forward, we might favor a slightly higher percentage of swaps than the long-term 50-50 average because I anticipate stability in swap spreads to develop over time, and I expect swap spreads to widen, which would be advantageous for us as the supplemental leverage ratio reform is likely implemented by the fourth quarter, potentially even by the third quarter. The changes we witnessed in the swap market in the second quarter were significant, particularly with longer-term swap spreads narrowing almost 10 basis points, highlighting the existing balance sheet constraints in the market, particularly between swaps and treasuries. We believe this balance sheet pressure will decrease as bank regulations are put in place, especially with changes to the supplemental leverage ratio. Consequently, we expect to benefit from our current overweight position in swaps, but a 50-50 mix is likely the right long-term approach.
Okay. Great. And then in terms of your CPR, it looks like the lifetime CPR declined. Does that just reflect the market expectation on rates?
Exactly right. In the second quarter, the yield curve steepened, with the 10-year yield remaining almost unchanged, only increasing by 2 or 3 basis points. There was a significant rally in the 2-year yield, which rose by 17 basis points, but the notable movement was in the back end of the yield curve, which negatively impacted the mortgage portfolio. As I mentioned in my prepared remarks, the 20- and 30-year yields increased, with the 30-year rising by 21 basis points. Mortgages are influenced by key rate duration, and therefore, the increase in the 30-year rate pushed forward mortgage rates higher during the second quarter, contributing to the change in lifetime conditional prepayment rate. It’s important to monitor this situation because most portfolios, including ours, do not usually hedge the very long cash flows in a mortgage; we primarily hedge in the intermediate part of the curve, up to about 15 years. The back end is quite unique and challenging to hedge from a mortgage standpoint. Most of our hedging focuses on the 10-year part of the curve to manage that long duration. Consequently, any significant movement in the 10s to 30s curve could impact mortgage performance.
The next question comes from Jason Weaver with Jones Trading.
Peter, despite the relative value implications we've discussed, we've been looking at the level of MBS spreads for some time due to their wideness. Would you agree that spreads have entered a larger long-term trend over time? The level of volatility has decreased, yet we're still at 200 over on swaps.
Yes, I believe we have established a new trading range. Looking back at mortgage spreads for the last four years, excluding the COVID event, we are currently at the high end of that range. We have just barely broken out of the previous range, reaching 220 basis points as a closing mark compared to swaps. However, that range remains intact. I would estimate that the range for mortgages versus swaps is between 160 and 200 basis points, and for treasuries, it is roughly between 160 and 120 basis points. This appears to be the new norm. In the current environment, I expect us to remain in the upper half of that range due to geopolitical and fiscal policy uncertainties, as well as monetary policy considerations. I don't anticipate significant catalysts for breaking out of this range, which I believe is a key development from the second quarter. There was substantial tariff-related market stress that we navigated, which is noteworthy.
Another potential catalyst that could have affected the trading range was GSE reform, given the uncertainty surrounding its implications. Key policymakers did an excellent job of clarifying their thought processes and objectives, which helped preserve the unique characteristics of the market. This likely alleviates some upward pressure on spreads. Therefore, while we are in a new range, I believe we are at the top and do not expect it to continue rising; rather, I foresee it staying within this range and potentially moving lower.
Got it. That's helpful. And then just another one on the capital deployment progress in 2Q and even currently. How are you looking at relative value within the specified pool product just among the different sort of warehouses there?
Yes. I mentioned in my prepared remarks that around 81% of our portfolio possesses some form of positive prepayment feature. In one of our tables at the beginning of our presentation on the asset portfolio, we specify that about 41% falls into what we define as high-quality specified pools. We believe there are many characteristics beyond the typical high-quality traits, such as low loan balances, that can lead to strong mortgage performance and more stable cash flows. These include factors like FICO scores, loan-to-value ratios, and various regional characteristics regarding tax assessments, as well as differences in loan types, whether they are primary residences, second homes, or investment properties. Therefore, we see significant value in incorporating specified pools, especially those with higher coupons, which offer a substantial yield increase although they also come with more convexity risk.
In the current environment, where house prices are stabilizing or potentially declining in certain regions, we believe adding these specific pools with the aforementioned attributes is valuable. Additionally, we observed in the second quarter that there is certain value in TBA positions, particularly in terms of implied financing levels for select coupons in Ginnie Mae securities, which represent the bulk of our long positions. However, conventional TBA positions do not provide significant benefits at this time, as there is no real funding advantage. Given this, we prefer higher coupon specified pools over TBA positions in the current circumstances.
The next question comes from Jason Stewart with Janney.
It seems that the curve steepener trade is quite popular. We've discussed hedges, but could you elaborate on the asset side? In response to Jason's question, how do you position it in a post-steepener trade, and is there enough flexibility? How do you manage the asset side of the balance sheet regarding coupons and other factors to maximize returns in the future?
Certainly, there is a significant amount of flexibility. We are adjusting our coupon position noticeably from quarter to quarter. We have ample liquidity and the ability to shift between TBAs and specified pools. The characteristics we've discussed alter our profile, giving us various options on the asset side, especially with a TBA position. We can transition from TBAs to pools and different coupons. As the yield curve evolves, we can adapt the asset side of our strategy. The key driver here will be hedge location, which is crucial, and we have substantial capacity for that. Most of our hedges are focused in the 7- to 12-year range, with around 83% of our hedge duration exceeding seven years. This concentration indicates that when we consider our asset key rate duration profile alongside our hedge profile, we have strategically positioned our overall portfolio to benefit from a steepening yield curve between two years and ten years.
We stand to gain and will continue to do so. If two-year rates decrease while ten-year rates remain stable or increase, our aggregate portfolio—considering our asset and hedge composition—will thrive in that environment. We anticipate ongoing steepening of the curve, especially given the current pressure surrounding the Fed. Currently, the two-year to ten-year segment of the curve is approximately 52 basis points, which is about 50 to 60 basis points flatter than the 25-year average. Therefore, I expect the two-year to ten-year part of the curve to steepen over time, and I believe our portfolio will benefit from that trend.
We have now completed the question-and-answer session. I'd like to turn the call back over to Peter Federico for concluding remarks.
Again, we appreciate everybody's time and participation on our call today, and we look forward to speaking to you all again at the end of the third quarter.
Thank you for joining the call. You may now disconnect.