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 3 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 meaningfully.
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 2 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 7 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 will be about $200 billion this year, 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 hard-working 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 #1 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 2 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, Bernie 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 4 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, 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?
Thank you for the question. Our outlook is positive as we enter the second half of the year, especially following the developments in the second quarter tied to the GSEs. This creates a favorable environment for Agency mortgage-backed securities. Currently, we are seeing some stabilization and I anticipate a gradual tightening of spreads, though I don't expect any significant drops in the near term. It's important to note that we've taken a measured approach to deploying the capital we raised in the second quarter, having deployed less than half so far. We still have the capacity to invest those funds effectively, as the current coupon for Agency mortgage-backed securities compared to a blend of swap rates stands at about 200 basis points, which is on the higher end of the four-year range. If we have the opportunity to raise additional capital during the quarter and deploy those funds, we are prepared to do so to generate additional value for our shareholders.
Right now, we feel well-positioned to deploy capital at a steady pace, and these opportunities appear to be available for some time. We could also operate with somewhat higher leverage if necessary. Our unencumbered cash position at the end of the quarter was $6.4 billion, constituting 65% of our equity, which is 2% higher than at the end of the first quarter. Despite the market volatility and a $3.5 billion portfolio increase, we have actually increased our unencumbered cash as a percentage of equity. We are thus well-equipped to follow your suggested strategy and will adjust our actions according to market developments and mortgage spreads, especially as we hope to see some resolution in ongoing political uncertainties regarding government policy and tariffs in the coming weeks. Additionally, we will likely see clarification on monetary policy within the next month or two. Overall, we have substantial capacity and flexibility to take advantage of opportunities 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 have discussed our net spread and dollar roll income for several quarters as it aligns more closely with the economics of our portfolio. There are many factors to consider when analyzing net spread and dollar roll income, particularly regarding the accounting for asset yields and hedge costs. This measure does not necessarily reflect the long-term earning potential of our portfolio and should be viewed in that context. However, it has indeed aligned more closely with our current portfolio economics. Regarding our return on equity, the $0.38 figure translates to approximately a 19.5% return. This is significant when considering current mortgage valuations, which show a spread of about 180 basis points in the current environment when comparing current coupon rates to treasury and swap rates. Given our portfolio leverage, we can expect a similar return on equity for new investments, estimating returns between 18% and 20%.
However, we should anticipate some volatility from period to period. Recently, our net spread and dollar roll income decreased due to the slower deployment of capital raised, and this will improve as we invest those funds. Additionally, we anticipate an ongoing impact from our swap hedges rolling off, with $5 billion rolling off in the last quarter and $2.3 billion replaced. Over time, this should lead to rising swap costs, though we expect our repo costs to decrease as the Fed eventually eases. Asset yields are still below market levels, and many factors are at play, but I believe our net spread and dollar roll income will generally remain in the range we are seeing, likely from the mid to high $0.30s to low to mid-$0.40s. I hope this addresses 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?
I’ll begin with that question and then we can revisit other topics. You provided a lot of information. We plan to be opportunistic and believe we are well-positioned to remain patient regarding our capital raising efforts. We view the second quarter positively, especially due to the significant volatility, which allowed us to raise capital in an accretive manner. This additional liquidity helps us endure potential future disruptions and enables us to invest those proceeds effectively. However, I wouldn’t suggest that the activity in the second quarter is a clear indicator of what to expect in upcoming quarters; we will approach each quarter as it comes. 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. So we still like the market. We are still deploying capital at a disciplined and measured pace. In terms of our preferences, as I mentioned, we continue to favor the upper coupons, particularly in specified pools with higher coupons, in the 5% to 6% range, which have some form of favorable prepayment characteristics. We appreciate the yield profile there, as well as the prepayment protection we can acquire with certain characteristics.
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 it's something we've discussed periodically. I want to emphasize that we're not growing just for the sake of it; our growth is aimed at raising capital in a way that benefits our existing shareholders and supports our dividend. If we can keep doing that, we intend to take advantage of the opportunity. There are substantial advantages to our scale. For example, our operating costs last quarter were at 111 basis points, which positions us as one of the lowest operating costs in the industry, making it quite compelling. Additionally, our stock offers significant liquidity, which is valuable for shareholders. We have concentrated our portfolio in agency-like securities, allowing investors to access this exposure through our stock in a very liquid manner. Our common equity exceeds $8 billion, providing ample liquidity for investors seeking fixed income exposure.
On the positive side, as we increase our market cap, we become more attractive for index inclusion, which connects to the benefits of growth, liquidity, and being added to more indices. However, it’s important to acknowledge that there are market capacity constraints we are aware of. The liquidity in the fixed income market isn't what it used to be 10 or 15 years ago, before the financial crisis. We are mindful of the size of our asset portfolio and our ability to transact in both the hedge and asset markets. We’re striving to find the right balance among these various factors while recognizing that there are limits 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 is that kind of reflect the mix that you guys currently have in the portfolio?
It does. When I calculated the return on equity, I arrived at 180 basis points using a 50-50 blend, which we believe is the appropriate mix for the long term due to the diversification benefits of having an equal mix of treasuries and swaps. However, we are currently slightly overweight in swaps overall. In the second quarter, approximately two-thirds of our hedges were swap-based. Moving forward, we would lean towards a higher percentage of swaps than the long-term 50-50 average because I expect swap spreads to stabilize over time, and I anticipate some upward pressure, meaning that swap spreads should widen, which would benefit us as the supplemental leverage ratio reform is expected to take effect, potentially by the fourth quarter but possibly even in the third quarter. The developments in the swap market during the second quarter were significant for mortgage performance, particularly the almost 10 basis points narrowing in longer-term swap spreads, which highlights the existing balance sheet constraints between swaps and treasuries. We expect that pressure to lessen as bank regulations are implemented, especially with the changes to the supplemental leverage ratio. Therefore, over time, we should benefit from our current overweight in swaps, although 50-50 remains the right long-term mix.
Okay. Great. And then in terms of your CPR, so 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 steepening had significant effects. The 10-year rate remained almost unchanged, increasing only by 2 or 3 basis points. However, we saw a considerable rally in the 2-year rate, which increased by 17 basis points. The larger story was at the back end of the yield curve, which negatively impacted our mortgage portfolio. I mentioned this in my prepared remarks. The 20- and 30-year rates rose, with the 30-year rate increasing by 21 basis points. The duration of mortgages is influenced by this 30-year movement, pushing forward mortgage rates higher in the second quarter. This change contributed to the decline in lifetime CPR. It's important to monitor this, as most portfolios, including ours, do not typically hedge very long cash flows in mortgages. Our hedging primarily focuses on the intermediate section of the curve, usually up to about 15 years, because the long end is so unique and challenging to hedge from a mortgage standpoint. Thus, our hedging efforts concentrate on the 10-year part of the curve to manage that long duration. Consequently, significant movements in the 10s and 30s curve could impact mortgage performance.
The next question comes from Jason Weaver with Jones Trading.
Peter, we've been discussing the level of MBS spreads for some time now due to their widening. Would it be reasonable to say that spreads are currently in a larger secular trend over time, considering the decrease in volatility, yet we still see ourselves at 200 over on swaps?
Yes and no. We have established a new trading range. Looking back at mortgage spreads over the last four years and excluding the COVID event, we are currently at the high end of that range. We recently slightly broke out of that range, reaching 220 basis points as a closing mark versus swaps. However, that range remains intact, likely between 160 to 200 basis points for mortgages versus swaps, and around 160 to 120 basis points versus treasuries. I believe this is the new norm. Given the current geopolitical, fiscal, and monetary policy uncertainties, we may stay in the upper half of that range. I do not see significant catalysts for us to break out of it. In the second quarter, we faced substantial tariff-related market stress, which we navigated successfully. Additionally, GSE reform had the potential to redefine the trading range due to the uncertainty surrounding it. The key policymakers effectively conveyed their thought process and intentions regarding the market's unique qualities, which alleviated some of the upward spread pressure. So, while we are in a new range, we are at the top of it, and I expect it to remain stable and possibly decrease.
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. In my prepared remarks, I mentioned that about 81% of our portfolio has some form of positive prepayment attribute. We have another category called high-quality specified pools that represents around 41%. We believe there are many attributes beyond the typical high-quality characteristics, such as low loan balances, that can lead to strong mortgage performance and stable cash flows. These include factors like FICO scores, loan-to-value ratios, and different regions with varying tax rates, as well as characteristics based on whether the loan is for primary residences, secondary homes, or investment properties. We find value in adding specified pools, particularly those with higher coupons, as they offer a significant yield pickup, though they come with increased convexity risk. In the current environment, where house prices are stabilizing or possibly decreasing in certain areas, we see a lot of value in acquiring these specified pools. Additionally, in the current market, we noticed some advantages to TBA positions, particularly regarding implied financing levels for certain coupons in Ginnie Mae securities, which constitute the majority of our long position. However, there are no significant benefits for conventional TBA positions at this time. Therefore, we prefer to hold these higher coupon specified pools instead of TBA positions in the current environment.
The next question comes from Jason Stewart with Janney.
It seems that the curve steepener trade is quite popular among traders. We have discussed hedges, but could you elaborate a bit more on the asset side? I believe you began to address this in response to Jason's question. In a post steepener trade, what is your strategy for positioning the asset side of the balance sheet in terms of coupons and other factors to enhance future returns?
Yes, there's definitely a lot of flexibility. We have been adjusting our coupon position quite significantly from one quarter to the next. There's ample liquidity and room to maneuver by shifting between TBAs and specified pools. The characteristics we discussed alter our profile, allowing for various options on the asset side, especially if we hold a TBA position. We can transition from TBAs to pools and different coupons. As the yield curve changes, we can indeed adjust the asset side of our portfolio accordingly, which will be largely influenced by hedge locations. This aspect is crucial, and we have significant capacity to adapt. Most of our hedges are focused in the 7- to 12-year range, with about 83% of our hedge duration exceeding 7 years. This concentration suggests that when considering our asset key rate duration profile alongside our hedge profile, we have structured our overall portfolio to gain from a steepening of the yield curve between 2 years and 10 years.
Consequently, we expect to continue benefiting from this. If 2-year rates decrease and 10-year rates either remain stable or increase, our overall portfolio will benefit given our asset and hedge composition. We anticipate that the curve steepening will persist, especially with the current pressures from the Fed. Currently, the difference between 2-year and 10-year rates is approximately 52 basis points, which is around 50 or 60 basis points flatter than the 25-year average. I expect this gap to widen over time, and I foresee our portfolio benefiting from that.
Got it. Okay. So perhaps too early to think about post steepener trades. And then I apologize if I missed this in the comments or the questions. Did you give an updated estimate for book value quarter-to-date in 3Q?
Yes. Bernie mentioned at the end of last week, it was up about 1%.
Thank you, everyone, for joining the call. You may now disconnect.