AGNC Investment (AGNC) 30 Apr 202020 Q1 Earnings call transcript

Company Profile

Participants

Katie Wisecarver	Investor Relations
Gary Kain	Chief Executive Officer
Bernie Bell	Senior Vice President and Chief Financial Officer
Christopher Kuehl	Executive Vice President
Aaron Pas	Senior Vice President
Peter Federico	President and Chief Operating Officer
Richard Shane	J.P. Morgan
Bose George	Keefe, Bruyette & Woods
Douglas Harter	Credit Suisse
Trevor Cranston	JMP Securities
Kenneth Lee	RBC Capital Markets
George Bahamondes	Deutsche Bank
Matthew Howlett	Nomura Instinet
Brock Vandervliet	UBS

Call transcript

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Operator

Good morning and welcome to the AGNC Investment Corp.

First Quarter 2020 Shareholder Call. [Operator Instructions] Please also note this event is being recorded.

I would now like to turn the conference over to Katie Wisecarver in Investor Relations. Please go ahead.

Katie Wisecarver

AGNC first joining call. XXXX for you Investment quarter Corp.'s earnings Thank

contain the we to of meaning call the This presentation like I historical XXXX. and Act of Private that the slide Before Statements would of Statement. fact review constitute begin within not they extent are Safe Forward-Looking Harbor corresponding Securities statements recitations Reform to the conference Litigation

Actual by of outcomes to subject Forward-Looking results to to the the Statements Reform of protection Harbor the beyond such materially Act. All differ control be provided and due could from many are Safe forecast AGNC. the intended those factors impact

Certain All AGNC's and Statements differ are are contained Factors this factors made cause Forward-Looking Forward-Looking actual date materially presentation section Risk in of subject of the filed Exchange this the presentation Commission. the included Reports Statements only and from as notice. to those that included results in Securities could to the with of are periodic in without change

Copies law. are our required SEC's unless We sec.gov. Statements Forward-Looking to at by any website obligation disclaim update available on the

Participants President on Vice Officer; Federico, Chief and include; the Kuehl, Executive Pas, Chris and Aaron Vice Chief Executive President; Financial Officer. President Bell, Senior and Kain, Officer; Senior Chief Bernie call Peter Operating Vice President Gary

call With to that Gary will turn over I the Kain.

Gary Kain

AGNC. Thanks, Katie, and thanks interest you for to in all of your

Agency extremely other terms The in the conditions income in as reacted MBS of of March were resulting and know, challenging during were magnitude fixed speed, decline witnessed a dislocations pandemic. As in and in products. unprecedented the both you COVID-XX valuation the market significant March to in

quarter impacted for all market financial financial posting with negative the AGNC's by the XX%. an volatility, economic like companies, was AGNC almost severely return of performance,

strong XXXX. is we us. generate we were remainder uniquely of we to And that behind worst optimistic result, the positioned disappointed we to adjusted look are ahead risk returns the are While believe we that as this by

fully To the the by of the optimistic rationale we economies. and impact to recognize this, its point, to prepared my significant dedicate the remainder presented explaining this intend pandemic In saying outlook. global on behind our associated I and remarks uncertainty U.S. the

Importantly, decisive the fixed Federal in late entire complex income stabilized and Reserve the the March. actions of bold

QEX at As case and of amount again this MBS. XXX approximately MBS in just were billion the from was has of months than purchased over QEX prior the purchased and episodes the critical that different any a has In Agency actions, part compressed in a significantly program but Fed fed larger a Agency in a much one securities history. more timeframe half point the Fed's

with and This stability provide ongoing with of sector COVID-XX. any as future should market with support Fed necessary coupled the the purchases contends associated the to the challenges expectation

the a are financial be primarily this in that we markets focus Against phase believe by the liquidity of factors. backdrop, fundamental from to on performance the driven actual will next transitioning process where

Fortunately, and is our guarantee Agency which comprised interest the almost the of timely MBSs GSCs. of the principle entirely enjoy from portfolio

the where little result, in lies. our future have credit a is which of bulk As exposure very we the portfolio, uncertainty

are and contrast, risk performance. interest funding prepayments the ultimate that In AGENC's factors determine rate will fundamental

will mind, factors examine landscape. this these briefly by the with be impacted current let's So how in

models tell the pre-payments substantially. prepayment levels will interest the on of increase low rates most First, front, us that record

the unique circumstances However, current these with not are models crisis. associated designed the incorporate to

in a their opt or difficulty forbearance to will mortgage on reduction in other have adverse self a existing others compensation, take borrowers decline some will due events. income, employment job loss, specifically, to More refinancing while

houses or mortgage degree and social turnover is a limits housing likely distancing called distancing greater timelines. Social origination as extend and the it may in to be capacity closing also will open activity industry reduce impacted other as showings. Purchase

some prepayments are impact between also rates There witnessed on While and similarities origination then landscape. interest materially changes where between of XXXX current scenario the low one is environment was considerations XXXX record the the mortgage different. we offset and the every credit to and by

If to around Fed on the prepayments even target are offered the we virtually Repo and current the unlimited Repo funding, basis rate the Fed benefits Government rates from the more straightforward. cuts target. to environment overnight and from move have points funds near The XX to they liquidity keep

on The picture rates, in-house basis points asymmetry our last dealer our as to is shortly, broker exposure MBS rates. our to flow around three ranged fundamental generally Peter the of single-digits Repo in on AGNC element month in will interest for cash bilateral such, As discuss current Repo. and overnights have from XX through changes maturities the

levered we in the balance a increases tradeoffs MBS assets. Normally declines in both the on position requires as of risk substantial to rates seek our duration Agency significant and hedging of interest

our you then opinion, negative believe or in risk low call considerably substantially near-term record However, being fully Rates. the that in more U.S. downside is if there hedged, interest today's are rates the to swap is given less which unlikely

favorable. Agency and contained, the The Agency with concerns. well, to social is MBS landscape credit rates So fundamental despite Prepayments function low trading distancing remain summarize, very of rates should close to is for as Repo a zero. market

there below downside basis portfolio. hedge rates less interest inherent relevant most points, our considerably risk believe XX is with in And we

optimistic ahead. not For tremendous these the our about is to be despite reasons, for prospects business that the hard uncertainty economic it lies

point, results first At our financial I Bernie for quarter. review this to ask the will

Bernie Bell

Thank you, Gary.

which $X.XX per had total net We from a per unchanged excluding X. share income and Slide spread the to $X.XX comprehensive for share, fourth am dollar roll quarter, first quarter. of was loss Turning the catch-up was

was our by in the offset occurred funding later cost. quarter that in portfolio investment lower decline the As

the by for our decline decreased quarter. our quarter. At a to the book was XX.X% and of level, relative in book high net the wider assets Tangible mortgage hedges, spreads underperformance value materially driven resulting our value during the

pool our More specifically, on pay was half to or premiums specified about position. due decline of values the lower up

costs and assets. non-Agency was of OAS remainder the incremental rebalancing the swaps, on While due our to our decline losses

on XX% return economic was equity negative our dividends, the common tangible for quarter. Including

portion position our This TBA and have have values recovered pay MBS QX pool valuations quarter end performance. modestly of of meaningful under while improved their specified up on

As a up book net result, our of value was yesterday, approximately as X%.

Slide decreased portfolio our of quarter the investment to as $XX to billion end. during billion X, quarter $XX Turning

at leverage book X.X tangible was with April has ending and to Our equity, but in unchanged value times. increase times declined around commensurate X.X our

quarter assets at position Agency at our liquidity with cash unencumbered Our end $X.X pre-crisis levels was totaling billion. and

an that credit our on broker assets. include of that million unencumbered $X.X figure billion or held subsidiary, not Importantly, excess at we XXX does of additional capital margin dealer

quarter pre-payments for the CRPs of averaged lower Actual to as Our from portfolio XX.X%. XX.X% rates. function increased during forecasted a quarter XX.X% the

During equity equity the a million to billion XXX and transactions we million, of equity rate preferred also first common one of quarter issued fix XXX after approximately floating offering, completed through market a offerings. X.XXX% creative equity including

million substantial quarter repurchased Additionally, stock approximately a estimated XXX to end, of at common value. we have tangible our discounts book net subsequent to

to that, With over I will turn Agency discuss call the Chris the to markets.

Christopher Kuehl

Bernie. Thanks

Let's to Slide turn X.

market of as of and the March inure Agency month a in mortgages mortgages the dislocations move mentioned, course three two launched were purchased MBS of fed widened Agency unprecedented. before the XXX QEX XXX quarters recovered the billion Gary As TBA over weeks. basis points

by high have specified worse. more March These XX make dramatic point decline The during more were increase HLB, two of even ups and would pay to been underperformance pools matters in Agency given March. To of was basis interest month than quality pay MBS fours on X.X ups expected in points. declined the rates and the

month extreme sheet flight inter manager to Money moves for lead cash and redemptions, pressures to investor assets. de-leveraging, a all risk balance

the by quarter While versus TBA of pool at a specified ended significant levels. mortgages amount recovered rates valuations the depressed end of March extremely underperformance the

to our positions were able normalize quality shareholders that was we valuations specified performance to April be on update the going as holdings turmoil we component When we thought in maintain our released we and believed these a of forward. that it would pool critical Company would through the Xth, March market inform important high

meaningfully, a Since higher. we few a cash fours XXst, as and attractive. expectations pools more return the very X.X minutes, are importantly, I more have will believe fact these HLB pay-ups March on recovered positions with in discuss on than specified point But flow in

investment as sales $XX net up downs of and billion and about billion X, lower turn net see, pay pools to in the $XX sales TBAs. of to pay billion Let's relatively declined Slide comprised $X as with March The $XX XXst. portfolio those was billion decline of of can generic billion replaced you approximately $XX by

lieu discussed fire we the on we of specs generic coupon added calls, to sale of our critical positions to liquidity specs during sell in ability higher MBS these to having and without quality March middle were relatively As part build lower at levels. had priority

returns on despite the as quarter leverage. of purchases two show XX using HLB, present highlight X,we Slide top X.X the nature the times compelling of MBS the to equity Fed illustrative second Turning on examples to potential fours Agency end year the nine by or several half gross return March, tables of in unprecedented

or a HLB loan backed to As than by pools equal reminder, less loans are balances XXX,XXX. with those

March and see, as to XXst. can inclusive costs, potential you mid of As to of in costs, but convexity teens gross returns, high funding hedging hypothetical prior were the

base pre-payments than attractive. Importantly, higher still the displayed the if returns speeds are are in even table

from enjoy predominant Fed lower we as two roll tables, production dollar the the with from the specialness. X.Xs an XX-year are XX-year purchases. advantage amount and In of funding without greatest and TBA such support assumed show X.Xs coupon

Role on is slightly X.Xs through Repo. financing implied to flat trading currently

the may Repo purchase origination we dynamics. basis However, specialness will do improve and points months that average and given coming current XX expect role through Fed in

assumptions returns the on of a without March our pre-convexity even as see, implied solidly based can you were gross financing XXst. XX-year potential mid-teens on advantage, As X.Xs role in costs

on have the currently the roughly valuations improved so example shown are X% lower end, quarter returns than slide. and Since

wide on uniquely norms current go look QEX. the for from while we March, business of unprecedented Agency presented the challenges we while fully historical a economic recognize is we tightened MBS, And return crisis, basis. the somewhat have forward, As they our excited environment forward to spreads MBS the remain by positioned materially about Agency depths are despite

the to now call will turn the I over non-Agency to Aaron discuss sector.

Aaron Pas

Chris. Thanks,

also credit pricing navigate, grapple the of to challenging had complete and the income with very and mentioned, rapid Gary the of products, a impacts across credit associated as ultimately illiquidity As to uncertainty fixed they recession. with serious markets all emergence were

Please turn I activity quickly Slide you the in will to X. on update outlook credit. quarter with our then our and recap

quarter's we million discussed QX in on the further XXX call, sold position spreads the of tightening to mid-March. anticipated in January. decline given prices close our reducing in of we prior last we our CRT As to CRT Accordingly, in

The quarter in PL our increase during subs. addition were in by for credit subordinate of a portfolio GSE a and bonds eligible the an reduction backed small other collateral the versus changes residential CMBS

our up CRT composition, CRT With was XXXX portfolio given GSE recovered quarter solid from chart, have as vintages well than materially issued to from of in the portfolio CRT see support HPA. These the respect performed and have portfolio built you half XXXX. credit lows pie and more and since their end can

Additionally, large retail And exposure. higher. conduit while we perfect have with remain the In comfortable deals, current second A (Ph) a half double with asset CMBS single of asset all in holdings. CMBS our or Almost non-Agency rated March, we or hit side exposure [FASB] no storm. lower is hotel on rated exposure the we minimal some were our have part and

of the to with borrowing some haircuts weeks. to on challenges and counterparties and were combined produce the there material increasing illiquidity couple with rolling in difficulties side, Repo concerns, financing Adding a along rates brutal credit

stabilize of The their still massive meaningful bit, Against for the challenging. And credit has backdrop, Fed that subsided, helped selling financing declines. but remains recovered markets. a intervention initial amount a valuations from non-Agency eased once

have the option the given we relatively the balance if size our on of taking sheet entire us, small for necessary. of non-Agency Importantly position portfolio,

ahead were of the Looking thinking these are things about. we some

the the On is a in-house prices, significant impossible only likely. decline shallow while in-house to view in a was our near-term it prices side, is discount drawdown residential that

time inventory needed. programs quick We both came modification be economic Barron's limited should servicers recovery into work supported and to The implementation XXXX give for strong up market formation. should they housing time and by with programs pent due to strong by a on for household housing demand

we losses increases six to past where job XX% X.X% With in today rapid will to that stand from conventional mortgage range. over forbearance XX% weeks, it is the the rates likely increase around

prices increase future house critical into in downside scenarios. this defaults dampen far impact the the should timing enough to dispositions to Given of REO the is limiting the and extending

prepayment negatively de-leveraging. speeds principal models to As Gary and return and Chris would many expect addressed we at of collaterals earlier, be than credit Agency impacts rate price securities project these levels. on discount slower with slower This

is they to business that likely hedge existing The programs of CRT other credit reduce use their implement protection to in were GSCs future. program, the by underwriting Lake the willing the purchased constraints they lose bypass they the GSCs would add CRT. new to programs normal be If of would the the refinance issuing guaranteed refinance Harp value than to

the the commercial Reserve's trying the and has structure downgrades. potential bottom the as capital in increases the meaningfully by default steepened the out forbearance the Federal around assumptions the [top] the to of has structure (Ph) been Material Turning capital into front, for credit top curve inclusion Conversely, is anchored in conduit expectations and program. of some rates. to price deals

workforce. the office These some the the view are range top take out hotel other companies greatest and of and outcomes. real in Challenges significant location market to New will in the and play could of uncertainty and sectors estate but commercial possible look diversify York time big to issues as retail biggest headwinds our their mind, buildings of face faces

opportunities the side spreads is Repo on delinquency challenges, and may lead time. to coming many monitor warranted along believe structured tightening at quarters data credit approach securities for we the This this patient products we to light interesting in of in the begin a performance. as with In get credit

the call to With will discuss that, and turn management. funding to I over Peter risk

Peter Federico

Slide start MBS the I activity functioned XX review quarter. financing on for will the well considerable during Aaron. turmoil, with market Thanks Repo remarkably our the market Agency despite

remain began of that closely steps the for the the trillion the the additional already March Fed Fed Given market the collateral and On an fall, XXth $X to had to to Agency issues treasury providing last target. day. taken Repo tied rate Repo Fed ensure Funds Repo significant liquidity each

Feds open Repo the ensured This dramatic like crisis. remain the liquid for extremely MBS high quality that with the operations coupled ongoing Agency market step throughout collateral market

point XX point XXth. lowered cut also cut basis to rate Funds zero March a basis bound rate Fed the the Xrd on The and March on Federal rate the with XXX

Our weighted for prior basis quarter average first the Repo XX quarter. down X.X% funding the was points from costs

significantly Our to still more X.XX%. Repo costs at quarter is end

market Today, Overnight the points XX new averaged has basis about target. Repo in Fed largely has to are-priced the Funds April. Repo

market term XX are-priced now XX trading XX-day trading about basis Repo about Repo at points also the at has basis with Importantly, XX-day points. and

approximately Given levels, funding decline Repo the basis points. I cost our these expect to XX average to in second quarter

the of which received funds also the Hedges cost on of as Our a floating in our Repo funding quarter, lesser Repo swaps. by swap to largely but aggregate costs cost our rate improvement degree, to the includes leg and offset improved our during was lower a the

LIBOR only Importantly, rates. converges to other negatively be cost funds not small part of aggregate as with representing short-term will with LIBOR our swaps a our impacted portfolio,

points. in I funds about expect ahead, cost to Looking the second to basis XXX our quarter be average

in environment, portion of we treasury prior March, Turning swaps in interest down rapidly our shorter to the terminating Slide end significant notional billion at XX, balance $XX hedge of hedge particularly portfolio changing hedges. a response term totaled the by rate the portfolio and our to from quarter. billion $XX quarter In significantly repositioned

declined XXX% the As our ratios from hedge to prior a quarter. result, XX%

quarter. With during close are-price rates term rallying short-term XXX term and swaps shorter about to rates being points points. dramatically XXX With rallying basis swap zero about longer OAS basis the swaps

about are points The basis five OAS pay respectively. XX swaps new and is only now and XX rate XX-year

lock funding protection while to for time, rates the provide such, extended a recovery. a levels against period in of an of swaps sharp event opportunity in providing in unique As these very the reversal attractive also

sensitivity. gap On and our duration duration Slide XX, we gap show

in changes the quarter duration about hedge band portfolio, throughout a quarter that tight ended the at I our remained fairly zero. the to our and Given mentioned gap

low extension significantly at is being whole. as more rates such the risk now and our there a in With absolute portfolio mortgage level, market in interest a

times in You with scenario. can rate our in two down see more profile scenario this duration the up it than in table asymmetric risk contraction extending the about the rate

operating or favor current we Given environment. flat gap this of the term asymmetry even a negative in cost will hedges, longer the and low duration likely with

supported risk close being profile further by a interest bound. zero Such so is the rates to

as there will scale to zero. before significantly and Fed tools to large While resistance negative will guidance of rate are their including that, purchases believe significant be utilize resorting likely especially all lowering the Fed below we possible, certainly rates Funds the forward

call over I will that, Gary. With turn back to the

Gary Kain

to point, up Thanks, would Peter. And at the like this open we to questions. call

Operator

Thank you. Rick the [Operator ahead. Morgan. from Shane Please And Instructions] first will question with come JP go

Richard Shane

all Good are morning questions. of everybody. this. you doing And I well through hope Two

a is non-Agency small the on it part look, of side, the First relatively portfolio.

policy very same I'm going the we or As forward over doesn't advantages. as an from an see weeks, curious in opportunity that have as necessarily risk dislocation the profile it seen you the interventions a six creates last benefit if different exit.

Gary Kain

thanks to comments don't I of in to an view wish let unique as We Rick, the best exit say environment this your the also first for want least. and kind the off, But opportunity. this everyone to like get question. me

we But, mean, believe have of the to credit we over all fluent to market. and do assume be time the of Because at mortgage a the position. makes run, that is about our in that be the clearly levered MBS is what to are points do best the that think I it it crack mortgage long going run to portion portfolio limiting place credit said we sectors in sense in Agency just naive

compelling. now, sectors, patient with we committed for but are extent So said only a risk being the that positions will to credit disciplined very and those will increase are in we significantly that and we we to be committed involved have return very involvement and few are to as years the tradeoffs we respect the

Right environment I make is of significantly. up conventional kind and But real a you headwinds put - of that specific. cheapened CRT or there let to environment range me sectors. credit so has very uncertain the mortgage and can today's market. kind of little to know obviously more that a credit are now so And Including that take

space uncertainty believe commercial the as The of is has we most probably certainly that. Aaron mentioned kind and

as fundamental opportunities the we as the some delinquencies, we But very there are seeing of improvement with comes we this in, don't being easily some stress, at information seeing the the we seen stretch from have lows, good So cheap imagination. the be credit could any that point of up as start in then credit by we think truck start there. the see as back

that business, in depending side how It next MBS magnitude the depending get three is saw situation here. months, like what also things, things the Fed’s on agency of the our where Agency QEX, six significantly possible the on programs, very on tightened evolve of to we we see could a over from

good book Agency will adjusted the it is risk returns on that the value, for While reduce of side. our kind

is to credit, capital credit. having a And real it it a there six like from so be will having some possibility that from us make of rotate real fluency into sense the having handcuffs without And but agencies involvement very to the three for now, is months positive. our away with

that are And likely six XX% now that arise. is ago. a it will than saying probably going those But chance much certainly was are to months is the is it would way we that say so definitely than not we less it more I go. conditions scenario

handcuffing again we So are understanding feel running the of us we terms achieved balance our of that core committed, good of up without are But it kind being is ending fluent, like in for. we products now looking business. what a we

Richard Shane

makes sense. that Look,

the you your will giving is larger quite not I tactically, opportunity a keep the (Ph) strategy? hearing think option an it asymmetry sort as hedging strategy forward, the view become to part strategically on One think it of going do and and [swaptions] of question, yet. seeing your the follow-up you develop issue what are rates I'm important

Gary Kain

but So say at just is OIS you that it might, asymmetry XXs. an let's say answer seven-year point, rate there the interesting swap to on pay where a is mid the at because really let's interesting, it is, swap, this on it is, pay the not fixed is allows

basis in don't XX believe cost So carry. receiving, that that But cost how that XX you lose you so much on say, you rates, you are if in basis points let's points short can swap you, position. negative

XX more In going so say goes rate an XX, swap most or on pay that okay, Let's points. a for lose to cases to you basis premium option. you are that

you aren't So go negative it can is that swap kind necessary. rates options of that unless are mindset really the XX of unique then to again,

impossible, Look that not aware and rates. on substantially I want saying obviously negative to have Europe and mentioned is negative rates, we just we on absolutely are in are is it going they of

a tighter go something do, they of will think as we thing of would and on give probably they lots other exit one an increasing do point position will do probably will host be things yield warning levels well. there, our definitively will curve do But will Fed their the they QE signs mortgage before that be us control, there at around

helps. So a we portfolio bounds asymmetry to is this think where zero it in the really short and in, really run a manage us be unique helps the again, position

Let that. me something let Peter add to

Peter Federico

Yes. Rick. Hi

already Let year, a taking of to strategy just quarter. shorter term two-year talked swaps, of billion I also added have drop but just the ended portfolio, add, that during XX lot which about. but we implement one- swap up term the you was swaps what swaps know significant to the our in we sort of about me much longer seen we Gary a off the amount started

In fact, four we added and about between swaps worth XX-years. $XX of billion

that option begun effective high. because rotation volatility are and that environment is based more so was already an cost he hedges have in interest we so hedges rate describing those versus much where So efficient

Richard Shane

it, okay much. guys Thank Got great. you very

Gary Kain

Thanks Rick.

Peter Federico

Take care.

Operator

question comes ahead. Please Bose with Your George KBW. go next from

Unidentified Analyst

arguably the you on the And of amount taking risks levered well. about guys I guys already leverage are were thinking spreads given given are you in the acknowledged feel returns and need just you guys hope mean, wide year-end you are this as still very remarks? [Eric] strong now, be considered environment are still is obvious that in for also with considered I be why to just How that It do there that relatively at all (Ph) opening less and are Hey, out right could as you thanks. you Good fact morning. and Bose. leverage. be the your

Gary Kain

and which and that has a higher look, at I leverage I - plus, level, changed through answer know, I we of picture. is a in will your will is our Well big it on that great kind question given what went March, take perspective question

one But speak. first prepared mentioned mainly value of so due increase to come remarks course he replacing Bernie's the of to that over in full the in and off, not down, was via thing amount April, portfolio. our It prepayments leverage has the book just shrinking the not

now So aggregate is leverage liquidity. we again, in or determinant in I final important is running, the stress an to leverage X.X, the no your answer. that number the do but end of But want that it to is closer are shape way, form

liquidity a And us Then on differ and from is A the your sheet can XXth more or for pools liquidity. their on receivable delay have sheet pool terms kind also balance a impact the on PNI month. to your TBA substantial are your given liquidity, CPR on where pay in much issue wait the efficient much, of for that payment drain you till XX perspective. pools of positions balance of XX

a would let's a putting this what that we definitely are - So say from say. But, would I we are consistent we leverage we want what to that, willing say XX, greater little levels emphasis because are were to us. putting X.X is shareholders run would think we environment with I on in liquidity is before, where

big components that understand quote analysts just So different to beyond both your to and of affect know kind picture below risk a and look ability leverage are and at would moves. little I the ask liquidity investors adverse there your handle you

as pool effective the around all-in average, just of or has down it pay maybe to balance X% as X% say - the in if Repo is in through requires to example X.X% on a in adds quick a that X% almost on dealer margin let's haircut. that CPR, that more whereas, position XXs bilateral in a sheet TBA on an securities the the is that, an haircut a position that And and is

So between versus that's bilateral a that massive TBA difference is a a effective a an haircut pre-paying on with X% Repo right pool position.

what liquidities in smart do adjusted is the should AGNC our investors side, risk that So to a returns. I expect optimizes to way be say would but cautious on it

Unidentified Analyst

Got it. you helpful. was Thank that

in I on sheets, my did bank on earnings their - they hasn't question pretty that been face come anyone on risk has The I well which least own going pretty they meaningful, looking the I forward. think manage some we reserves differently funding. have it that at lost out. been has next that mean, somewhat loss have balance its creates think

would as well. securities of general, to to move as guys I funding to? - to you AGNC, to other not mean, the we kind how their of And challenging will but if your curious needed the be more operationally over how about of bulk funding, say funding your in funding just even a you side just I'm or your wanted it businesses think So exposure the that, and banks supply just ability to

Peter Federico

Hi, you for well, Hope is thanks question. the are Peter. this doing

First off, remarks, I change. prepared there terrific to expect market is would so the Repo in that they collateral I throughout sure has making do and the I system my in And say liquidity today. to done Fed that mentioned really sufficient are job the for the that as crisis. continuing don't traded well of agency a remarkably

out counterparties. issues out the to in them, of is you as well point counterparties of had XX books XX have counterparties You very all XX% the we performed quarter, any those which But the funding our with And end our exposure, quarter securities. those know for other having across of counterparties. to Fed we of the addition at no us have the we during about spread

no And counterparty. concentration. really because any concentrations there positions move significant to from one that significant quickly, counterparty-to-counterparty So in allows is us have don't very we

us for for an the good other is our quickly security your bilateral point matures it the easy collateral Fed to Fed perspective, to it very to one. securities. And move we can a operational very move to example, collateral. When From about is

have We additional capacity, it. could we utilize and

highly utilize be as a is Fed Gary on if it TBAs some is and mentioned, able would And have on not securities. we it the didn't and from TBA the may incredibly efficient on degree, we it efficient to to do side, we that because to funding margin side, perspective

a But to provide we individual highly are continue is but And best really the the ability counterparties. portfolio move mix that now have support is as fact have group strong think I so like need they motive right for and our diversified we the to to best the if we also that to participate us, and large as market believe to. going well of in

Gary Kain

and And September, just all in then a was And Repo unexpected that been overnight - just since there Government right. of that, huge government actually spike complex go the the rates. ownership spike, agency to taken rates, right through when in Repo lasts Repo it didn't it engaged the went in and has Fed incredibly March, shock keep want I mind it through

fact in dealing been in of And with point, that lot March a in think I the way. market to function Peter's had a Repo of and a large was success of it March the market the the Fed

then operations, market dollars Okay. to to well Repo. open a doing Buying and in that trillion overnight March offered bills, prior address they

treasuries very, that or purchasing very focused to Backed Mortgage before even of I Securities. you get mean on the and issue is Fed

So is the going let thing I that issues. Fed's have to last the think that

shrinkage the And is clear, we the our portfolio broker more given book, FICC our And have shrunk, not us move let stuff. we but want dealer be the repo direct you gives of Fed having access the is it - and it in the closer. to definitely to and have on

on thank have question. bilateral the capacity, We spare for of lots the But side. you

Unidentified Analyst

Thank guys answer. was you Stay thank That you. the for helpful. well, very

Gary Kain

too. You

Operator

Your next Suisse. go Credit Please question Doug will Harter ahead. be from with

Douglas Harter

Thanks.

pay January kind you wise, performed in wise whether are As specified to you of there about mentioned, just talk up April. and February. have Can well price pools compared

Gary Kain

Yes. Why that take don’t I let one. Chris

Christopher Kuehl

thanks Doug. So

is over mind to still But so know the thing for pay-ups extremely HLB, that at X.X think QX you improved of very at while still depressed. in are I pay-ups still swaps and then, to or since so at that year the given the levels depressed are Relative are and point slightly higher. very on were they coupon a attractive example, have start start valuations very, a fours keep

good They actually pay-ups. XXX valuations, XX point cheap (Ph) year-to-date lot given still, basis quite are they in just points have despite starting at about [OUS] absolute a a in still rates, the underperformed the basis were changes changes extremely wider. When think XX you move to

they are ROE So X.X and currently fours if or lower points as to so on basis we slide you yields XX were look presented, back around that than the XXX. of

I so potential lower. say And would is X% roughly ROE

are And very attractive. so but very, there even still returns

Douglas Harter

of the of specified again, the about a to halves? more proved guess from you And, how liquidity kind out, coupon think less and liquid of the I obviously pool, is generic - the periods balance thinking to the how right are on slide gain balancing you at that where the of use do kind the of kind stress? what two returns, be to liquid in which what And are Great. the looking versus the more pools about think returns versus

Gary Kain

It is, well, and I fully you something off, from great was the want March certainly don't we were in a is Chris, don't first look aware liquidity then say the high can start specified why But question which whole before portfolio pay-ups pool. of of would is your you add. what lesson I and,

to things for your moving have both April, tightening now least. And in balanced. that relatively options are I returns, But given that the we the even reduces competitive look and they seen think, your said, liquidity say offer that and around

is factors have there today's stable in stable origination, the are flows, you got coupons, higher no technical cash relatively environment. the In

are you to volatility think don't price I So, going see much that there.

Your are there going be going kind exposure surprises is and of to realize to be there. pre-payments to speeds,

there it, a more improve lower for In rather specialness the we downside to lot the to think be on to run, be of to upside. role the coupon But is potential short the other to are the and those. likely versus returns side than expectations, surprises for said the

liquidity pure You down. a can pay benefits to run form, TBA that positions is not have or pool, the new going production a you have those in where in

think And answer is, benefits there. a balance to we those. the short of there want So are I achieve

be have low that you issue production. other there one will The is with coupons significant and there has been

and production the are fast is in bid other versus coming technicals how So bids. the any Fed’s

volatility expect So will that use look to we point. entry in price we more and coupons do lower as an

So it add a from that is something to high will level. I Chris let it.

Christopher Kuehl

add don't say the I lot improved while mean flow there. lower position. our reliant Fed think to is a important the pretty to well. overly it from position have specs I expose have up would spec be you than, We a mean, cash I other that to I around fair amounts, I coupon summed Gary, stability diversification want a don't

Gary Kain

is a good that No, point.

Douglas Harter

you I guys. Thank appreciate that.

Operator

Trevor Cranston ahead. JMP The Securities. go with next Please from is question

Trevor Cranston

Hey, question thanks. on previous A side. the

You rates between much and could to compressing MBS currently on base about near-term. the limit sort of risks of bake least than the to? guys you what potentially lot are there you case you biggest spread prepay what consider at to secondary likely get further a assumptions you that that expect of yields how it kind into talked fast mortgage the factors your where speeds Can and comment how be terms in in compression would primary

Gary Kain

Yes.

that. Let me over are or you start prepayment to at all environment stressful say the Carlo Monte Their results models the want is them. when look I this models that on a mean, simulations, modeling, now, OAS I for place. right

This you to And it bit primary model. mortgage derived rate a the rate, differ from you one evolve quite variables is of how that and overtime the model okay. thing the addressed, you key how

about in to I from kinds rate, perspective overtime. say we our what the secondary spreads do is, compress. would or thinking They do prepayments, of expect primary in these environments primary But

not that to think I is immediate. be it going

much the and periods that how will interest kind today think compression other slower of drops given big And let's universe say given that it than be in was of circumstances, of rates. is the unique refinance and we

will yes, type over distancing time, that said headwinds on have it increase we have will to of credit social the six will take that the think as as but kind we hand, So next, the three But months, well as incentive call headwinds. the we you other refinance. to

know, We be easily good be forbearance forbearance the mentioned prepared remarks, didn't generally lot. to going option qualify there lot for talk you don't And very but borrowers. but Others a a mean, for loan. forbearance we won't to that going new issues very, in aren't take able I a to is that GSE are qualify. our a of people

are are are factors upside, I will those the next to the a of there speaking, work. months. surprising that practically lot prepayments keep from that, six thoughts. think prepayment There that But certainly predicated over factors So, and to is three

that we think compress does. longer to take as as where are little fact going it normally the think will And spread the Again, a go secondary it on overtime predicated are things will time. I this it primary

Trevor Cranston

Got it.

one Okay. on That side. more And helpful. is the question then just credit

of that was Thanks. I Aaron have rates just in parties mentioned somewhat color terms for completely of are change availability remains credit there additional pull if any where a significant market just think his how you could counter the seeing kind and in generally that you you are seen the much wondering of in haircuts terms provide securities. number and of funding remarks constrained. I if from of away

Gary Kain

I I point, our you considerations, haircuts sure. of they as a of funding board kind are are kind across been are - non-agencies, finance know small very higher we and small some percentage of raised. but everyone obviously almost they do at Yes, knows, mean, this have positions is the think I relatively mean it our

the have anything and The business counterparties than altogether. exit But are they if willing be attractive to rates business some there still into from that people going are much the were this. we And they a seen things less clear now and are do still area, type of more X% over the better the are at course security. you dependent than are were, of or kind looking of are the obviously but haircuts rates and on little month, to whatever

fundamental are some one if our waiving of these we then economy the And just have in could sort you these to the I things start credit of that of stress to we is or are side. absolutely challenges. And view financing the on some finance. on were double things were affects see bad mean, speak which so dip can't factors a and again possible, there very that then looking to in more so, that,

to have our that into So build assumptions we in ROE.

on things looking are look if the them attractive funding one than position, unlevered Look, more from or position given a when position it position, thing is a only on cash levered are challenges at you an long side. at the you

Trevor Cranston

Thank that. on color the appreciate I Okay. you.

Operator

Capital from Markets. question RBC next Kenneth will The with Lee be

Kenneth Lee

as morning. my Thanks. altogether, interest dynamics us good much how Fed just I'm in give you the able improve prepared be lower net a spreads as Hi to mentioned question. much would given wondering funding for potentially remarks? ongoing Thanks that supportive taking the sense from the in if the could agencies near-term, well you costs

Peter Federico

you Ken. are well. doing Peter, morning, Good Sure. This hope

sort I costs basis I quarter. Repo of second the I in our come As around down building expect will to mentioned, XX give blocks. points you the

third from by into quarters expect the significant I there and fourth way. improvement And

Repos quarter. fourth to costs the and around our basis down in about XX the it basis third points longer points mature, XX As of could drop term in higher some easily quarter

going be are variable is to of costs, The on expected cost funds our total which be for around to net swap XX points. our liabilities - basis

of us give second funds quarter. would a the XXX that So of around cost in

On around neighborhood the down, to might asset the going is but terms a probably it yield side, obviously, reasonable yield be come in in of starting asset XXX, of spot.

interest XXX quarter expect second in would points. basis I our toward XXX, So net trend the margin to

hedges the rotations then quarters. as we there, obviously going from asset fourth continue portfolio to which the as in the longer swap do talked put think cost of or part rebalancing will on well that or side, doesn't the the move right third of some the part the to about on curve as And of much then of we the we our some in cost as ultimately to are now. pressure which very depend swap intermediate reposition downward it would I swaps And curve and on

into think up it that is range. So directionally I heading

Kenneth Lee

adequacy $X.X is position strong liquidity the way of some follow-up, to of in this liquidity in I may, observers outside of you way assets, just Okay, us there provide if how helpful. just what terms cash or billion position this us could liquidity relative the is frame unencumbered context a one position? best is great. help the or us Thanks. for Very And determine that as

Peter Federico

obviously thank very Yes, are for it you And that. helps that you much to have right, lot some to background question. a

where stands So you know that historically.

At then end of Let AGMC billion, it our me X.X, so at billion non-agency X.X it was the a between and give point. just cash securities another the starting X.X is you Bethesda, unencumbered year, right. and was

between of you really equity was which if is you where XX% strong that operated. historically, pretty look that absorb that it obviously a to a of And our we you position XX% back lot stocks. see somewhere of at huge the so And would time, and typically and the at upper end capacity gives represented XX%

MBS cash billion As Agency had then the was at Fed in our XX% is that non-agencies we on capital. of the Bernie plus mentioned, the of total a X.X $X the billion all that billion X.X XXX XXst the March totaled and from and which million

basis ended period unencumbered a percentage more the crisis cash in on the equity. with at end So we of March,

our at XXX. even unencumbered of was $X.X plus in cash AGNC position It billion at X.X securities stronger. the yet and another was Yesterday, Fed and

of unencumbered X%, our billion unencumbered up that and to is XX%, had percentage sort it high as the as X.X had have close ever we close described of being which increased to against we capital we So operated. of

we gives advantage actually gives more - take on history And stronger the a us significant have the and come to liquidity you we is and put in this risk have environment. gives in and crisis a sense through where a us we most that even actually position have how So of forward that cash flexibility market it ourselves have unencumbered opportunities. going now position prioritized in in

Gary Kain

quick we it about if in think across to way you position. me Let another tomorrow mortgages, which just is entire we walked are too, give our

before, of We move. saw worse margin X.X generate I points, calls we two kind mean, but are expected that be generate or of about that obviously is obviously, down massive would a Peter? would which to Right billion.

Peter Federico

right. That is

Gary Kain

That two our hand zero, So, having without billion around half so plus to with than any the margin we X.X liquidity billion. thought be have and of on more, points, would adjustments. XX that have calls less we make

about that is substantial of that in another think way cushion how to terms So that is.

Kenneth Lee

that. me. is Thanks appreciate very, thanks. That Really is helpful it and again everyone stay from That color. Great very safe.

Peter Federico

Yes, you too.

Operator

George from Bank. question next go ahead. will Bahamondes with Please Our Deutsche come

George Bahamondes

confirm I quarter. Peter morning. addressed that question. costs I roughly good Hi to mean, though? I that X.X% been has believe average may you to believe in the just my on on prior be second the expect the question was answered just you borrowing total have

Peter Federico

I that is basis the points. around to TBA TBA two expect the expect cost talked that I again, is Chris or that correct. expect which XX components total about cost that be to in Yes, be I XX cost basis funds specialness, funds range. Repo around to at down XX a points. And of total to

the percent which the hedges swap at a total projected you as XX end of about plus liabilities forward basis out our So expressed of be of would sort quarter, that the our of cost if that of the points. combination going

X.X%. of around funds to cost total So

Gary Kain

forth. are mind, positions doing quarter rolls swap terms month and a there in and so obviously, are and moving dollar assets than keep of we into less just in But with go we the what up end lots of parts where and

lots to mind in of numbers things that keep is move So, different those could around. that that there

George Bahamondes

all you that. for Thank great. Absolutely, confirming

Gary Kain

you. Thank

Operator

Nomura. from go next ahead. will with be Howlett The Matthew Please question

Matthew Howlett

Hi the interest always the QE and the you volatility. sort Gary, are for ahead my first shareholder really of step taking during protecting to time last of congrats Fed, everyone, program. one on of thanks question all,

So I those of questions. more just want to some really focus on

when has any want that do know I they policy, if First, is did address control? you of nature? think address the talk you there that, you yield something implement would curve of about I first, that but risk been you don’t to there talk

Gary Kain

and where kind want the in overnight end is in job peg think their intermediate longer setting that they there end. is a and decide they Obviously, they Funds of the Fed the I sense, currently it sector like, I is, mean, short very Repo.

chosen XX-year, just a they the decide do I that level, such Japan trades amount for that Bank to will of want speak. of whatever go kind but be they have And code, basis XX-year they needed hypothetically to say, say And, in they others, of XX around the zip to they if it to to as keep were the pick execute to points. would route, so let's

tools, into I of crisis the much they extensively. stabilized they are and have their just play, this have them better obviously, a think comes on are feels performing they and like ready have this don't than markets don't financial hosts now. think that much, a And kind were, so And right to Fed they are I point. I unleashed where at do like, of using I feel they hands feel

the But because let's they that a side, where their they say have QE from things these brought little side kinds mortgage things the on more are substantially start again their likely on likely than bit unravel month to are Fed ago. to the up treasury is of purchases and do, they a probably were the to down

would to increase and thing were again, would at look economy do could So and losing QE the start ground weakening they probably felt was was if I again liquidity do. getting they okay. they was think else first they But worse, what they the

two because this doing might levers terms control. are look have of And they they they and And to yield main curve in what treasuries first down of magnitude then MBS. probably their the backed

And there think the of market now, before participants. they right amongst we negative with which or for think experiment are either stomach is at I all even will financial really things kind they rates, of most these that do no Fed

possible, offing don't think is is in it So, run. I in it the short the

would go of negative they one the to rates. to before again, went they it think tools might I be

Matthew Howlett

are your you in that. gap, in in buy got target also rates. to mentioned I to for you mean rates your see going until your start bring that this think be? going mortgage backup about they think want are mind what where you target think a feel you the Fed they that they Thanks to different below different would X%. have X% you think consumer below has then they And more duration, rates managing we and just that that When is QE mortgage to business can you model - you but X% buying. come want more Do know do

Gary Kain

You know I think it is evolving.

think some or of still on two around in the Powell’s] going I the stimulating start this press there are ways a are [Chair think now focusing they market. and proper but from is in conference from still would they a (Ph) more of mindset function are liquidity month I yesterday, And markets. their take the to I and purchases designed

the Okay. the this Fed that move of from to other and central And and Potter people you tools the when over who don't have have Simon again, the the to like left go heard rate over one have Fed, they from they stimulating unique banks that ability okay. is mortgage and

earlier question the of primary, an to the because discussion wouldn't to it And matter secondary right related now spread.

So prices secondary they move it affect just because primary it. higher rates could mortgage would today, the mortgage spread and wouldn't offset

want from months to now. lower. have potentially they couple will A the be incentive and push mortgage more rates That to case won't

markets can the the that preserve I they in a phase are will and still right their they there. in kind now next is financial sense, go So they from is of of think strengthen the stimulate liquidity, mindset how economy,

Matthew Howlett

everyone. Thanks Gary. Thanks

Gary Kain

Thank you.

Operator

Vandervliet next with UBS. The go will question Please be Brock ahead.

Brock Vandervliet

you. Thank

levels your horizon do over is and point, to forbearance You six of it rolling the this expectation those from therefore to XX effect the, the XX. that not kind reference up, made the buy these having how the of this of to call of have you a at recovering on of risk passing to end Obviously the pricing? of risk out what pulling the look delinquency of and at the could some rates, GSEs credits, but pools

Gary Kain

have great question. on, early it pulled as with used month, the the reasonable is four to where delinquencies we that past to were after call kind I delinquencies And And think, it researchers a significant because months this to written have a and was will pools. prepayments. of of risk over GSEs a look, different loans a from about concern described policy Yes, respect that

free equation. So very and with regular to practice, delinquency, relatively have if this forbearance from fast a treated they then got stuck have you was XX% quickly we boilerplate were if coming to if forbearance forbearance this payments like could

is a will explicitly But the and both it they forbearance was have are regular over probably month put they wait forbearance period, they where start a okay. clock, going GSEs could out guidance that delinquency, four like the and up which a treat and not be FHFA about before week ago, year to to until

So there are if out out likelihood. and that, there situations modified there that, could the think is but before that pool to of ways be are I very before are it low come the a loan where turned

is year now. problem getting for a delinquencies realistically a pulled a So, these from pools half say, and from let's

be it. first repayment then people put We we focused a that will hope delinquencies reasonable are their be jobs those by on the that is have obviously, good able of think And they plan. and very a on And many then. think regained off, chunk of will those obviously to

tried CPR, not performance ultimately But default our in these X% actually out pool so percentage speak, low pools. is and pulled the sit of the you to it out X% pools. probably that okay, and you is And so that will impacts XX-months, pulled of very of yes, if to and think are of a there of very, say, something the be them we or I borrowers mean, a maybe say let's negatively

don't these pull they way going missing out outcome hurricanes delinquencies, a treating forbearances net-net, On prepayment treated don't this a the forth. time other people good and was view they from key loans Katrina want the so wait perspective, I I payments and these and the they long as is that the are in the very way, of where to again, But, pools. to a a that contrary, GSEs mean, have change think I

and specks of the very in coupon That FHFA securities that a particular, define to were critical see and performance in release. is explicitly we to higher happy press

Brock Vandervliet

it. Got

out a the Obviously, of and How this right CRT market? if beyond aggressive very the protection, come is but that question value the gate to value through threaten does is the Okay, that would an would with key analogous that they CRT. credit they I of forebear out modify distinction. of guess forbearance. CRT,

Gary Kain

their a would interruption and pay, work to look giving are borrowers income to time current their think and mean, to I we if short-term job So, know you are be them the the in who giving that significant with there I back, will is we of CRT to fact through of have forbearance them And ability options. hopefully get their good get there plan that. then terms is lots they a

or of keeps Aaron lot the any pressure market REO prevents likely from prices. off housing it as in And mentioned spiral remarks, disposition a downward for time buying just prepared his house prevents a and

that good ultimately. So for CRT

view have to about, have things, kind are interesting the favorable the one thing gotten question that the prepayment of to this you other The that on we times not is well, is just that at that Aaron of they back fast. question alluded to going be going prepayments,

CRT thing look the they to handcuffs someone trying other income does and deciding streamlined respect The Refi past faster GSEs where with it much implement of situations that program to in really whether some is job really, can terms Refi.

because that a they for they CRT Refi that home money this years. holder, the us bought credit they that is essentially and protection a let run do have they people for have as in have if But seven then that issues,

bulk the borrowers. protects That these from weaker credit the for them Okay. of losses,

go to that waste just and them are they going Refi uneconomically, and if they do that protection. basically And

situation. have of position, see happening. sort that that do in little certainly built bit hedge not for sense for a we of our a we In So a

Brock Vandervliet

Got it. safe. Stay Gary. Great job. Thanks

Gary Kain

Okay.

again. and too you know You thanks

Operator

and this gentlemen, would question-and-answer Kain I our closing session. Gary call to And concludes remarks. like the to conference back any for ladies turn over

Gary Kain

you forward I would to times safe we to their thank I speaking like and these really AGNC. stays in Well, difficult look, next again interest with quarter. for that look hope everyone everyone through

Operator

Thank presentation. today's The attending sir. you, conference for Thank concluded. has now you

now may You disconnect.

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