Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AGNC Investment Corp (AGNC, Financial) generated a strong economic return of 9.3% in the third quarter, driven by solid book value growth and a stable monthly dividend.
- The Federal Reserve's shift towards a more accommodative monetary policy is seen as a positive development for AGNC and fixed income markets.
- AGNC's diversified mix of assets and longer-term Treasury-based hedges contributed positively to performance.
- The company raised $781 million through its at-the-market offering program, benefiting from a substantial price-to-book premium.
- AGNC's total stock return with dividends reinvested was 17.5% over the first nine months of the year, showcasing its ability to generate attractive returns.
Negative Points
- AGNC's tangible net book value per common share decreased by about 3% for October, reflecting recent market volatility.
- Net spread and dollar roll income declined by $0.10 to $0.43 per common share for the quarter, impacted by a reduction in net interest rate spread.
- The company experienced a decline in leverage to 7.2 times tangible equity, indicating a more cautious stance amid market conditions.
- AGNC anticipates a period of increased volatility due to the upcoming election, which may require defensive positioning.
- The backup in interest rates and the resulting volatility have negatively impacted AGNC's book value in the short term.
Q & A Highlights
Q: Can you explain the changes to your hedges and how they position you for curve steepening?
A: Peter Federico, President and CEO, explained that AGNC has shifted its hedges towards longer-term instruments, with nearly 80% of hedges now in 7-year or longer durations. This strategy is designed to benefit from expected yield curve steepening, aligning with the current monetary policy environment.
Q: How should we think about core earnings in relation to economic returns?
A: Peter Federico noted that core earnings should converge with economic returns over time. While net spread and dollar roll income declined due to swaps maturing and a shift to treasury-based hedges, the long-term economics of new mortgages remain strong, supporting a return on equity between 16% and 18%.
Q: What are your expectations for agency MBS spreads and return opportunities?
A: Peter Federico expressed confidence in the current trading range for agency MBS spreads, which supports attractive return opportunities. With spreads stable and wide, AGNC anticipates continued strong economic returns, aligning with their dividend policy.
Q: How does the current volatility impact your book value and strategy?
A: Peter Federico mentioned that AGNC's book value was down about 3.5% due to recent rate movements. The company is maintaining a defensive position with low leverage and high unencumbered cash to navigate short-term volatility, particularly around the election period.
Q: What is your view on the current prepayment environment and its impact on your portfolio?
A: Christopher Kuehl, EVP and CIO, noted that recent prepayment activity was less aggressive than during COVID, despite some refinancing incentives. The current environment, with mortgage rates above 6.5%, suggests a slower prepayment pace, which is favorable for AGNC's portfolio stability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
