AGNC Investment Corp. (AGNC) Q4 2025 Earnings Call Transcript
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Overview
The earnings call summary and Q&A indicate a constructive outlook for Agency MBS, with favorable market conditions, strong financing, and positive GSE reforms. Despite some unclear responses, the overall sentiment is positive, driven by stable spreads, attractive returns, and diverse investor demand. The company's strategic focus on optimizing asset composition and managing prepayment risks further supports a positive sentiment.
Key Financial Performance
Economic return for Q4 2025 11.6%, driven by $0.36 of dividends declared per common share and a $0.60 increase in tangible net book value per share due to lower interest rate volatility and tighter mortgage spreads.
Full year economic return for 2025 22.7%, reflecting monthly dividends totaling $1.44 per common share and a $0.47 increase in tangible net book value per share.
Total stock return for 2025 34.8% with dividends reinvested, nearly double the performance of the S&P 500, attributed to AGNC's actively managed portfolio of agency mortgage-backed securities and associated hedges.
Leverage at the end of Q4 2025 7.2x tangible equity, down from 7.6x in Q3 2025, with average leverage for Q4 at 7.4x compared to 7.5x in Q3.
Liquidity position at the end of Q4 2025 $7.6 billion in cash and unencumbered Agency MBS, representing 64% of tangible equity.
Net spread and dollar roll income for Q4 2025 Unchanged at $0.35 per common share, including $0.01 per share of expense related to year-end incentive compensation accrual adjustments.
Hedge ratio at the end of Q4 2025 77%, reflecting the level of swap and treasury hedges relative to total funding liabilities, unchanged from the prior quarter.
Average projected life CPR of the portfolio at Q4 2025 Increased to 9.6% from 8.6% in Q3 2025 due to lower mortgage rates.
Actual CPRs for Q4 2025 Averaged 9.7%, compared to 8.3% in Q3 2025.
Common equity issued in Q4 2025 $356 million through the at-the-market offering program at a significant premium to tangible book value per share, bringing total accretive common equity issuances for the year to approximately $2 billion.
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Operating Highlights
Agency MBS Market Positioning: AGNC highlighted its strong positioning in the Agency MBS market, benefiting from favorable macroeconomic factors such as the Fed's shift to lower short-term rates, reduced interest rate volatility, and improved funding market conditions. The company emphasized its ability to generate compelling risk-adjusted returns and substantial yield for shareholders.
Economic Return: AGNC achieved an 11.6% economic return in Q4 2025 and a 22.7% return for the full year, driven by lower interest rate volatility and tighter mortgage spreads.
Leverage and Liquidity: The company ended Q4 with a leverage ratio of 7.2x and a strong liquidity position of $7.6 billion, representing 64% of tangible equity.
Hedge Portfolio Adjustments: AGNC shifted its hedge portfolio toward a greater proportion of interest rate swaps, positioning itself to benefit from anticipated rate cuts and a more accommodative monetary policy environment.
Capital Deployment: AGNC raised $356 million in Q4 2025 through its at-the-market offering program, bringing total equity issuances for the year to $2 billion, which was deployed to enhance book value and portfolio growth.
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Risk or Challenges
Interest Rate Volatility: Interest rate volatility remains a challenge, as it impacts the performance of agency mortgage-backed securities (MBS) and hedging strategies. Although volatility trended lower in 2025, it remains a factor that could adversely affect returns.
Funding Costs and Leverage: The company operates with significant leverage (7.2x tangible equity), and funding costs are influenced by short-term interest rates. Any adverse changes in funding markets or unexpected rate increases could negatively impact net spread and dollar roll income.
Hedge Portfolio Composition: The shift toward a greater proportion of interest rate swaps in the hedge portfolio introduces risks, particularly if swap spreads or interest rate environments change unfavorably.
Supply and Demand for Agency MBS: The supply and demand balance for agency MBS is critical. While currently favorable, any disruptions in demand from banks, money managers, foreign investors, or REITs could create challenges in absorbing the $400 billion of MBS expected in 2026.
Regulatory and Policy Risks: Potential changes in Federal Reserve policies, such as adjustments to the standing repo program or supplemental leverage ratio requirements, could impact funding markets and the performance of agency MBS.
Prepayment Risks: The average projected life CPR (conditional prepayment rate) of the portfolio increased, which could affect returns if prepayment speeds deviate from expectations.
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Guidance & Outlook
Macro Themes for 2026: Favorable macroeconomic themes, including lower short-term rates, stable supply outlook for treasury securities, and reduced interest rate volatility, are expected to persist, providing a constructive investment backdrop for AGNC's business.
Housing Affordability Initiatives: Potential further actions by the administration to improve housing affordability, such as the recent $200 billion MBS purchase announcement, could result in tighter mortgage spreads and lower mortgage rates.
Funding Market Improvements: The funding market for Agency MBS has improved due to the Fed increasing its balance sheet size and enhancing the functionality of its standing repo program. Additional Fed actions to improve the repo program could further benefit the Agency MBS market.
Supply and Demand Outlook for Agency MBS: The net new supply of Agency MBS in 2026 is expected to be about $200 billion, with the private sector needing to absorb approximately $400 billion. GSE purchases could consume about half of this year's supply, while demand from banks, money managers, foreign investors, and REITs is expected to remain strong.
Net Spread and Dollar Roll Income: Lower funding costs from recent and anticipated future rate cuts, increased stability in funding markets, and a shift toward a greater share of swap-based hedges are expected to provide a moderate tailwind to net spread and dollar roll income.
Hedge Portfolio Strategy: AGNC plans to operate with a greater share of swap-based hedges in its hedge mix, particularly as short-term rates approach the Fed's long-run neutral rate.
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Shareholder Return Plan
Economic return: 11.6% for the fourth quarter, driven by $0.36 of dividends declared per common share and a $0.60 increase in tangible net book value per share.
Full year economic return: 22.7%, reflecting monthly dividends totaling $1.44 per common share and a $0.47 increase in tangible net book value per share.
Dividend yield: AGNC has generated a total stock return of over 11% on an annualized basis with dividends reinvested since inception.
Common equity issuance: Issued $356 million of common equity through at-the-market offering program during the fourth quarter, bringing total accretive common equity issuances for the year to approximately $2 billion.
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Key Q&A
Q:Can you talk about where you see spreads currently versus where you saw it in the fourth quarter? And help us walk through the dividend coverage.
A:Peter Federico explained that mortgage spreads have entered a new range, with current coupon spreads to swaps in the 120-160 basis point range, currently around 135 basis points. For treasuries, the range is 90-130 basis points, currently around 110 basis points. He noted that returns at the current spread range are in the 13-15% range, aligning well with the dividend. He emphasized that dividend sustainability depends on long-term portfolio replacement and marginal returns, which will take years to materialize. The current portfolio's net spread and dollar roll income of $0.36 per share translates to a 16% ROE, aligning with the total cost of capital at 15.8%.
Q:Is the incremental portfolio closer to breakeven ROE given the incremental returns are more in the 13-15% range?
A:Peter Federico confirmed that the incremental portfolio is closer to breakeven ROE. He explained that the required return on new capital raised is compared to the dividend yield on the stock (around 12%), and current returns of 13-15% exceed this threshold, providing ample coverage.
Q:Can you talk about the risk or potential benefit that could get you to the high or low end of spread ranges and how that informs your leverage decisions?
A:Peter Federico highlighted that GSEs' portfolio growth and government actions, such as changing portfolio caps or Fed balance sheet adjustments, could tighten spreads. Negative factors like streamlined refinance or G-fees could widen spreads. He emphasized the importance of spread stability for leverage decisions and noted that leverage has been reduced in response to spread tightening. Future leverage adjustments depend on the stability of spreads and government actions.
Q:What would you do to address affordability questions if you were in the administration's shoes?
A:Peter Federico praised the administration, FHFA, and GSEs for their actions in 2025, including guiding principles and focus on spread stability. He suggested that increasing GSE portfolio caps could help maintain attractive spread levels and emphasized the importance of spread stability for the mortgage market.
Q:How do you gauge your positivity on the investing environment for Agency MBS versus a quarter ago, 6 months, or a year ago, and how might that impact leverage?
A:Peter Federico noted that while spreads are lower, returns in the mid-teens remain attractive. He highlighted reduced uncertainty about the upper end of the spread range due to government actions, which is positive for leveraged investors. He expects actions to be taken if spreads widen materially, providing more certainty and stability.
Q:Can you give an update on your view of swap spreads and their potential for further widening?
A:Peter Federico stated that swap spreads are likely to remain in the current range or widen further due to the Fed's shift to reserve management and easing regulatory requirements. He noted that swap-based hedges offer better returns and stability compared to treasury-based hedges.
Q:What are your thoughts on volatility going forward and its impact on MBS performance?
A:Peter Federico explained that declining interest rate volatility in 2025 positively impacted MBS performance. He expects volatility to remain generally low in 2026, supported by the administration's focus on long-term rate stability. He anticipates a slow decline in 10-year rates, which would benefit Agency MBS.
Q:Could you give an update on equity issuance and expectations for ATM issuance?
A:Peter Federico confirmed no equity issuance quarter-to-date due to a typical blackout period before earnings. He stated that future issuance will be opportunistic and based on economic conditions, with no urgency to grow beyond the current size and scale.
Q:What is your take on traditional buyers like banks and foreign demand for MBS over the next 12 months?
A:Peter Federico noted a more diverse investor base for MBS, including strong bond fund inflows, gradual bank purchases, stable foreign demand, and continued REIT demand. He expects demand to potentially outpace supply in 2026, supported by GSE purchases and regulatory changes.
Q:At what level for mortgage rates do you think the refi market will accelerate, and would you adjust hedges in response?
A:Peter Federico emphasized the importance of asset selection and coupon composition in managing prepayment risk. He noted that a positive duration gap and receiver swaption positions provide protection in a rising prepayment environment. He highlighted the significance of avoiding high-risk pools and selecting stable cash flow assets.
Q:How is the barbelled composition of the mortgage market affecting your ability to pick pools and deploy capital?
A:Peter Federico stated that ample liquidity exists across the coupon stack, allowing flexibility in portfolio positioning. He expects GSEs to focus on PAR coupons, which may tighten spreads in that area, but noted that liquidity remains sufficient for deploying capital into various coupons.
Q:How should we expect the duration gap to evolve over the coming quarters, and what are the boundaries?
A:Peter Federico explained that the duration gap is currently around 0.5 years and may widen if 10-year rates rise. He expects the duration gap to operate within a range of 0.25 to 0.75 years, providing protection against lower rates and prepayment risks.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the level of mortgage rates that would accelerate the refi market. While they discussed prepayment risk and portfolio composition, they did not specify a rate level or provide clear guidance on how hedges would be adjusted in response to accelerated refinancing.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AGNC mortgage
AGNC portfolio
AGNC stock
Agency Fed
Agency Index
Agency confluence
Agency market
Agency response
Aggregate Agency
Bell income
Bernie Bell
Bloomberg Aggregate
CPRs equity
Department official
Fed action
Federico President
GSE reform
addition
agency mortgage
backdrop
funding market
harbor
hedge mix
housing affordability
increase book
investment environment
purchase
rate cut
rate volatility
repo program
return basis
sector
share increase
shift
stability
stock return
supply
term debt
tightening
AGNC Transcript
AGNC Investment Corp. (AGNC) Q4 2025 Earnings Call Transcript
Positive1-27
The earnings call summary and Q&A indicate a constructive outlook for Agency MBS, with favorable market conditions, strong financing, and positive GSE reforms. Despite some unclear responses, the overall sentiment is positive, driven by stable spreads, attractive returns, and diverse investor demand. The company's strategic focus on optimizing asset composition and managing prepayment risks further supports a positive sentiment.
AGNC Investment Corp. (AGNC) Q3 2025 Earnings Call Transcript
Positive10-21
The earnings call summary highlights a favorable investment environment for Agency MBS, supported by manageable supply, demand growth, and government commitment. The company has strategically raised and deployed capital, enhancing portfolio performance. The Q&A session further supports this positive sentiment, with management addressing concerns about spreads, leverage, and prepayment risks effectively. Despite some unclear responses, the overall outlook remains positive, as management demonstrates confidence in navigating market conditions and optimizing returns. Given these factors, the stock is likely to experience a positive movement over the next two weeks.
AGNC Investment Corp. (AGNC) Q2 2025 Earnings Call Transcript
Unknown7-23
The earnings call presents a mixed outlook: positive aspects include asset growth, favorable prepayment characteristics, and high core returns. However, concerns arise from increased swap costs, higher CPRs, and management's cautious tone on capital deployment and leverage. The Q&A reveals management's optimism about returns but also highlights uncertainties in market conditions and prepayment risks. Without a clear market cap, the overall sentiment remains neutral, with no decisive factors indicating a strong price movement.
AGNC Investment Corp. (NASDAQ:AGNC) Q1 2025 Earnings Call Transcript
Unknown4-23
The earnings call summary reveals a mixed picture: stable dividends and a slight increase in total stock return, but a decline in book value and increased leverage. The Q&A section highlights concerns about spread widening, regulatory changes, and unclear management responses. Despite strong liquidity and hedging positions, the lack of clear guidance and potential risks suggest a neutral sentiment. The stock price is likely to remain stable within a -2% to 2% range over the next two weeks, given the absence of significant positive or negative catalysts.
AGNC Slides
AGNC Report
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