AGNC Investment Corp. Q3 FY2024 earnings call

Peter Federico's Remarks

• Spoke about a favorable fixed-income investment environment with mortgage spreads wider than historical norms, Fed rate cut, and yield curve steepening. Mentioned AGNC generated a 9.3% economic return in Q3, with a stable monthly dividend at $0.12 per common share for 55 months.
• Highlighted the Fed's transition to accommodative monetary policy, which was positive for AGNC and fixed-income markets, with treasury rates rallying and yield curve ending the quarter with a positive slope for the first time in two years.

Bernie Bell's Remarks

• Discussed financial results: total comprehensive income per share, economic return on tangible common equity, leverage, unencumbered cash position, CPR, net spread and dollar roll income, and common equity issuance through at-the-market offering.

Chris Kuehl's Remarks

• Talked about the agency mortgage market: weaker economic data and dovish Fed rhetoric provided a constructive backdrop, yield curves steepened, MBS performance varying by coupon, portfolio composition changes, and hedge positioning shift towards longer-term treasury-based hedges.

Aaron Pas's Remarks

• Addressed Non-Agency markets: credit spreads, portfolio composition, and stable funding environment.

For the third quarter, AGNC had total comprehensive income of $0.63 per share. Economic return on tangible common equity was 9.3% for the quarter, comprised of $0.36 of dividends declared per common share and an increase in tangible net book value of $0.42 per share or 5%. Leverage decreased modestly to 7.2 times tangible equity as of quarter-end from 7.4 times as of Q2. Unencumbered cash and Agency MBS was $6.2 billion or 68% of tangible equity, up from $5.3 billion or 65% of tangible equity as of June 30. Average projected life CPR for the portfolio increased 4% to 13.2%. Net spread and dollar roll income declined by $0.10 to $0.43 per common share, driven by a narrowing net interest-rate spread. The company also issued $781 million of common equity through its at-the-market offering program.

Guidance

• Anticipates Agency MBS spreads to remain in the current trading range.
• Highlights the positive impact of the Fed's transition to accommodative monetary policy.
• Expects stable long-term interest rates and Agency MBS spreads given current economic outlook and Fed stance.

Risks

• Volatility in financial markets.
• Uncertainty in the path of monetary policy and economic data.
• Impact of election on interest rate volatility.

Q: Bose George asked about changes to hedges and core earnings convergence.

A: Peter Federico responded on hedge positioning towards longer-term treasuries and core earnings converging with economic returns.

Q: Crispin Love inquired about 30-year mortgage rates and expectations.

A: Peter Federico discussed mortgage rate outlook, noting primary mortgage rates above 6.5% and stable outlook.

Q: Rick Shane asked about delta hedging and leverage in volatile environment.

A: Peter Federico mentioned being well-positioned on leverage and active on delta hedging.

Q: Doug Harter questioned treasury hedges and swap spreads.

A: Peter Federico talked about shifting towards swap-based hedges over time.

Q: Trevor Cranston asked about yield curve steepening and MBS demand.

A: Peter Federico discussed sources of demand for MBS like bond fund inflows and Basel III clarity.

Q: Eric Hagen asked about leverage and coupon stack deployment.

A: Chris Kuehl discussed opportunities in production coupons.

Q: Jason Stewart inquired about prepayment environment and weighted-average coupon.

A: Chris Kuehl talked about prepayment sensitivity and trend towards higher coupons.

Q: Harsh Hemnani asked about expected light CPR and coupon trend.

A: Peter Federico discussed CPR increase with forward rates and expected trend towards higher coupons