AGNC Investment (AGNC) 26 Jan 212020 Q4 Earnings call transcript

Company Profile

Participants

Katie Wisecarver	Investor Relations
Gary Kain	Chief Executive Officer
Bernie Bell	Senior Vice President & Chief Financial Officer
Chris Kuehl	Executive Vice President
Aaron Pas	Senior Vice President
Peter Federico	President & Chief Operating Officer
Doug Harter	Credit Suisse
Eric Hagen	BTIG
Bose George	KBW
Charlie Arestia	JPMorgan
Trevor Cranston	JMP Securities
Kevin Barker	Piper Sandler

Call transcript

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day and welcome to the AGNC Investment Corp. Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded. to Relations. conference like Wisecarver to now Investor in would turn over the Katie I ahead. go Please,

Katie Wisecarver

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

Gary Vice With Officer; to call Executive forward-looking Chief Operating Certain the required Kuehl, the and from Senior sec.gov. Bell, Bernie turn in those the Exchange statements are the Vice Safe we and historical statements that, change Kain. without the this filed materially made Actual to All the to AGNC. beyond Reform to that, safe Executive Aaron intended as only and the includes call of extent meaning periodic review Officer; those are call Before differ of included in not Harbor Private subject disclaim corresponding are forward-looking Peter factors to the to on protection I'll date like of at Act recitations are reports Commission. the President Vice factors to Chief subject are results statements our actual notice. are Chris due All Reform outcomes materially obligation President; forward-looking This of the of and and AGNC's statements the contains Litigation available unless update provided statements statements, statement. Chief Act. with forward-looking the forecasts Factors contained such constitute SEC's be differ President of Kain, conference by the presentation, section law. presentation slide they the could many Risk Pas, control by impact I'd begin, included of Participants facts, Securities website and Securities of cause in could We results forward-looking Copies Officer. harbor that the over to any XXXX. Gary to Federico, and Financial presentation Senior on from President; within this

Gary Kain

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

in well positive supported MBS funding economic to purchases. ongoing Our XXXX and portfolio importantly, full the return large-scale in very X.X%. our attractive positive QX, economic return by X.X% total extremely to continued fed QX lifted year perform Most

As a our paid, dividends offset than value. in our full the plus value combination XXXX, This return a book and decline share very result, QX experienced change more $X.XX in paid decline our per favorable is year year book significant the the economic value. given reminder, the of peers. in during book many the of $X.XX cash dividends In the losses the in is by XX%

funding stronger tightened, yield continued from with this coupons longer-term fiscal During boosted the outlook, volatility quarter the with MBS substantial January. optimism to half Agency limited continued performance and stimulus fourth strong XXXX continued benefit was MBS lower prospects rates quarter steepen, second curve additional recovery. with outperforming. equity roll support, credit strength Consistent the and spreads modestly, to began vaccine rising as a and show a markets during levels. efficacy to the in for the around board, trend across ongoing rate has dollar interest strong fed that economic

attractive does purchases. said, the agency assets, in basis dual of levered improvement That MBS for are investments. on low costs expected investors, continued financial the the fed funding valuation relative new of reduce on including several last all a given profile agency the and over ahead, return quarters MBS Looking still benefits the

interest short-term this the the MBS portfolio, growing they XXXX. their mortgage environment remain for review be will quarter. is likely fed rate the in through Even sheet, early purchases any their least and stops to to the to results zero with near XXXX active call after us until financial Bernie see at we likely it of is market, replacing in raise interest Importantly, will runoff turn point, our unlikely At very they tapering rates. balance to over I the the will begin before

Bernie Bell

Gary. you, Thank

Turning $X.XX in X. per had fourth up the income to per share comprehensive from share. was excluding of $X.XX fourth third come dollar quarter. lower the Net and our $X quarter. total share for on roll $X.XX was AM We during slide our catch spread peak decline quarter to of position recent asset yields of moderating attributable $X.XX TBA advantage purchases largely per funding prevailing somewhat new the The

on expect being call, general net That trend ahead largely looking net the performance this remain X.X% for we quarter, the quarters, expect in Tangible mentioned roll X.X% last strong tangible economic dividends lower book of to income per on of I our for XXXX share, was spread coupon common well the As due quarter. assets. to still our our the value said, $X.XX levels. equity return we Including our continue. above to over next dollar several early increased fourth

month, this value far about that our of net book as we So up Friday, last tangible is X%. estimate

Turning to slide X.

unchanged $XX.X quarter. investment end billion portfolio quarter at from third Our the largely totaled

Our last quarter X.X tangible largely as leverage to times was X.X end, of due ending appreciation. times equity, from book down value

the assets speeds assets include held holdings in totaling position prepayment at credit portfolio our to billion unencumbered on TBA held in But quarter. coupon Bethesda end, both fourth of which and at does lower increased unencumbered assets broker-dealer the liquidity for Our very our XX.X% quarter Actual form. remained with $X.X this cash Securities. excludes strong importantly, the and quarter component subsidiary not our agency

the to fourth quarter, $XXX million quarter, from XX.X% primary forecasted notable to per prior quarter mortgage largely rates additional CPRs common during an the average repurchases accretive price increased Our quarter. of share. we completed decline stock life of basis XX.X% Also during in an as due repurchase of $XX.XX at point a XX end the

slide to Moving X.

as the Gary a generated return net in market And $X.XX year, AM. mentioned, share positive per X.X% spread comprehensive the challenging of and earlier $X.XX the excluding the economic had we total income for roll extremely despite year. year we For catch-up and dollar income conditions of

million Lastly, market. the outstanding during year, turn shareholder-friendly I'll that, completed stock. accretive we including over capital stock commitment common our With capital to the discuss transactions to or the agency demonstrating markets to of mortgage of $XXX $X.X call repurchases our common X% of Chris activities, billion

Chris Kuehl

Thanks, Bernie.

Let's turn slide X. to

Following to volatility the a progress agency gradually interest strong commitment in steeper and election lower of vaccine current news, with higher A and Fed maintain until MBS. policy longer the rates volatility risk made moving for economic substantial from particular end provided and is curve. assets rate the its further interest steadfast the its curve, tailwind trend rate downward on the yield continued

agency points the across XX despite coupon little versus performance, stack, while positive hedges, lower notes price, see longer can duration MBS prices the yield lower in underperformed the price. higher than you generally two tightening Specified pool basis XX-year in quarter. coupons higher were during MBS a ended even more in As points in or coupon off selling quarter the

Let's turn to slide X.

see can investment the billion December you $XX as chart left at was of changed in portfolio the XX. little top As

coupon Given quarter attractive during coupon spreads the lower trimmed and coupon of favorable favor incrementally demand technicals fourth higher MBS. production we XX-year in for holdings MBS,

production value in runoff. However, the the and now outperformance equation outside of and and coupons fourth year-end, to the specified is coupons with pools further natural of quarter replacement between balanced compositional unlikely relative of drive the higher coupon lower changes since

are quarter. TBA the year-end, billion rates production relative XX roughly financing but some quarter trade basis coupon XX-year the XX large well roll Importantly, implied coupons. we financing financing Roll roll cheapened Currently continued $XX.X points as of special fourth particularly repo. first net exceptionally implied noticeably implied into a in position remains during half during maintained attractive to to to of the

Looking spreads this Corporate turn to for non-agency is have purchases, unique debt, particularly tightened that ongoing now that over MBS all to I'll residential credit, the call tighten, a to the over is well improve funding, some have Aaron to suggest sector. of discuss attractive further during value considerably to Fed given XXXX. ahead, environment last market. relationships while backdrop the have prepayment six spreads agency agency months and likely performed the and not mortgage still relative performance the CMBS room

Aaron Pas

to update market both additional appreciation portfolio CRT We and with Slide some And the the credit-sensitive as several our over for Please quarter Thanks over levels. the Chris. light tunnel of quarter recap in quarter in of to in and back cash cases levels. to CRT and virtually credit positioning assets end the briefly any rest widened news was the provide housing the our on quickly election the adverse Event our of vaccine the coupled stimulus front. received due and for dissipated I'll near-term to allowed risk rally the with an on then look track on After investors and through vaccine rounds a for expectations the associated positive credit. turn risk X. combination October the highly our concerns. in perform of at backdrop, with With COVID structured as holdings as a to largely and The current outlook to value tighter well all pre-COVID have With our certain tightened grew of well through data credit QX. assets continued incremental well products two, holdings, spreads lower as which price found holdings. through investments our flows, position some that increase resetting our now drove across credit much retraced respect the as rated quarter.

through filtered LIBOR repo the last retracement with into to relative now borrowing of spreads year. rates levels has are asset some rates approaching of early Fortunately in

housing the to Turning backdrop.

changing to quarter remain large we from participants, to by migration but this or we is areas of high should may material factors see performance, are out this to a as; held market take aggregate term. risk be home view said credit to housing of living many related in in spreads little has tailwind With the and can the higher-priced anywhere said, strong state a where today. If likely could increase and increased policy, to significant there play front. trends. last been which tax several some impact. headwinds continues have trend on risk such in the near a provide work the of support This As that This face years driver that remained that residential a cost the fundamentals work it from in and country attributed negative will

we incremental Peter cannot in credit when discuss the this management. for we to not an call and with ignore turn risk to current this that With risk evaluating I'll While, do investments certain over positioning funding see exposures. issue being mortgage our

Peter Federico

with I'll our summary Aaron. XX. start on Thanks Slide financing

funding repo cost points quarter XX the prior average Our for basis basis two from was points, down fourth quarter. the

points of the in late our quarter. Our however lower basis end, as funding cost at funding higher was materially matured only longer-term at quarter some XX cost

Today for flattened a funding longer-term the decline broker-dealer by is depending direct the the around Importantly, costs basis of sourced repo also through repo. in driven example, area curve a XX-month our quarter XX counterparty. it the materially longer-term to with captive in whether cost XX- points or on during

environment, I XX Given this quarters. relatively expect our favorable basis next cost average around funding the points over at to repo several stable remain

aggregate was associated to XX costs roll TBA the decline funds cost The continued our the with cost somewhat our the from did cost in well funds costs. offset fully dollar quarter our swap and which repo funding asset prior X as hedges in as very the more combination of fourth yield. improvement This includes of cost, our improvement the of points Our basis sharply points quarter. the of position, to lower basis due in not declined attractive however swap lower levels

decreased As a down from to points XXX modestly interest points margin net prior quarter, the the basis basis fourth our quarter. in result, XX

hedge as increased asset positions our yield pay portfolio the to interest replaced aggregate, XX, slide expect curve such On margin the short a XX-year $XX from of the in billion yield prior current significantly the levels, I up from lower protection to quarter. of were with pushing both at and downs fourth net the yield similar as which we positions. in treasury of be overall summary billion totaled our biased the to asset ahead, gradually provided provide new swaption These Looking the are steepening our curve quarter. us quarter hedge purchases In as lower. occurred against meaningfully incremental somewhat prior our part concentrated $XX our what and we added portfolio,

discussed our quarter increase, at prior of on from that risk higher increase reflects end to we continuation theme of the up macroeconomic toward the is rates. XX% hedge last the Given couple This which shifting a calls, earnings more quarter. XX% that is increased this our ratio

sensitivity. gap show and duration Lastly, on our slide duration XX, gap we

a With our negative bias with a incrementally the our call half to over Our end gap increase This to at of in duration protection. hedge current quarter turn upgrade consistent the environment in I'll duration Gary. shortening our that asset durations gap is the portfolio, of the was with back and year. negative more the operate the

Gary Kain

Peter. Thanks,

of public to up open I focus don't longer we our the to wanted highlight provide disservice, added And calls relative rest process, call absolute we I quarterly on quarter the we're Before the questions, and the that if investors on equity earnings probably slides doing term. to a AGNC longer-term a space, perspective outlooks. tend near-term the for we appendix a new few in Like AGNC's performance performance. this periodically address and the

since our XXX group As and XXXX slide our from peer total perspective stock a IPO. the XX both illustrates, return May average AGNC has S&P outperformed

the residential time date the XXX frame. existence only environments our since pandemic. has show included total the are in XX, crisis, we the time versus challenging and On other that and some takeaway rate over stock IPO mortgage over slide fact, The time including AGNC's relevant wide two REITs this XX-plus REIT some benchmarks. range benchmarks of that XXX it's are the an In S&P is period over return outperformed Taper one the very we occurred a has top-performing extended mortgage comparison of that Brexit we and COVID-XX year outperformance at of S&P episodes Tantrum, financial great our that of the global key and despite interest

adversely events the slide unmistakable. yield performance, AGNC's to these we On traditional trend short-term again, noteworthy. some And yield long-term AGNC's compare of vehicles. is is impacted line While result XX, the

of of Over in really $XX.XX a to financial in dividends since AGNC's is its vehicles, And but can this up. yield multiple has noteworthy do IPO paid As these the AGNC given you levels broader see per the markets. X.X% yield it share yield across total only available back dividend not is low point, time, traditional add particularly a XXXX. dividends

Finally, consideration a critical expense is structure always vehicles. investment for

or unique for higher This reduces AGNC long-term the the vehicle illustrate translates returns to industry-leading pro-cyclical for to believe slides in these especially to that lowest consider lack in asset we points. is translates slide, realized true cost is by you this at a cost internally is with with per to in ETFs. virtually to great for AGNC's basis, structure, correlation in last an show is we the analogous any a portfolio returns which fees REIT an charged REIT Collectively and credit XX investor. having It lower cost our a of portfolio. be the points, the available manager On percentage lowest with a a why space. fit opportunity managed AGNC's basis under the is risk mutual equity On structure a industry lower operating bond portfolio. which asset stockholders' combine the as basis is Expense fund of line able to when stock typical directly other so expenses mortgage XX

So, with to up call questions. me let the that open

Operator

Thank you.

We Doug question-and-answer Suisse. the with Instructions] Today's will begin ahead. first question Harter from session. Credit [Operator Please go now comes

Doug Harter

distributions kind Thanks. from that into the outlook this the and the that about following changes up Can XXXX a Gary whether need power you for year just dividend. flipped standpoint? now your on of whether dividend taxable of we've talk for

Gary Kain

way. out we potential you But or both the as income. in income a back distribution time. income question of binding longer we that's have accounting taxable true a rolls space dividend. to and think in standpoint, and the in mortgage of a taxes what's I'm key. kind our income dollar you of From the Because I for no is glad all quite economic way go that's use differences taxable basically that respect led taxable actually to continue bit pay and given historically the us to we the have asked REIT And requirements the set between where a with us. happened flexibility constraint Really income

ago flexibility way we that policy that XX without than what -- it if gives act had our in it a to a company maybe sense more and kind or years with respect So, us dividend can that and look we more is a that like at and five to constraint not practices normal that of is binding.

current income, is dividend the important if or of And at big any very tax have so picture you at what's REIT particular the okay to kind is very, from dividend other look environment binding around and yield so then and or alternatives you our mortgage And vehicle look X% attractive look perspective. your you at you for around And really say in in constraint don't the a space relative side. AGNC. a AGNC we this

Another really thing we we in like really for just to and we're and worked in certainly investors. that well the think is position that about we it's keep mind think out

paying So, quarters, look several or-more few nine dividend. at back going percent the quarters a last a we're

point. this those mentioned that three with is again the shareholders as over value equation book possible. that in to two. stock the to best returns is growing comfortable and are up other going make prior that looks we're certainly And can. trend happy shareholders The is And the we're of is price or again as for dividend we've That again money back strong bigger the we total buy generate be on Bernie priority words and of last value able book other And much to stock We're And is as stock. then January our this discussed quarters. with. But in part. the book calls position priority risk-adjusted price our our very for look something is part the value at that combination We up. the a X%

dividend, And we're continue sense. run right active for it's isn't of Look, be care the value, in combination when think it again important continue go book equation in to stock an it the to buying takes But which makes going to component the only dividend price, shareholders. overall direction. the go-forward the then And it continue So, to basis. the in that's best And the how we'll on of shareholders. long a of to stock translates AGNC back we evaluate piece. is things

Doug Harter

Gary. Great. Thank you

Gary Kain

you. You’re welcome. Thank

Operator

next our Eric BTIG. Please And today ahead. question from with comes Hagen go

Eric Hagen

good guys. Hey, morning

approach you volatility like them spreads you specifically term? of the Thank you near TBA? the backdrop And selection portfolio question, or specified in some general around the do it X.Xs about higher most the in into with hedging given for how and about of alpha you what the coming can talk about asset And your positioning? pools talk you thinking think the Do coupon side, the portfolio detail just you question being the AGNC such. about over lower more you, Xs. you coupon the go and Where second outlook spread tight. then adding managing side First see maybe see actively maybe from can the relative to can Maybe owning duration

Gary Kain

hand our I'll both over to back start that in to But to I go just and it prepared want is, remarks. made quickly Chris. earlier Yes. Chris big then I and would picture what I say comments

what seen strong -- three we And we've and about performance. in -- First and mentioned off, yes, spread mortgages, quarters agency you of expensive MBS question now. look, more are what the again,

kind quarter We MBS look can't the widening. which mortgage financial a of But so the of move via across in to this cost about market -- The can't first, current funding a -- late expensive from beneficiary you seeing kind don't mortgages strength and lens, you needs some or in everyone low direct that that direct are was that backstop purchases. and AGNC is be than and And more look a the -- practical -- or are half making but more And of to of two board. incredibly And Fed agency a bond at of MBS say the bad. vacuum. look at need be the recouping assets averages. of longer-term market we're they let's dynamics, absolute the certainly quarters

So who levered true on the and unique beneficiaries obviously we're a of that's equation. especially investor, relies funding

So, -- this -- used to more with look, coupons. roll of kind has over that the sort normalized and several coupon believed that last versus dollar were that But we've has being the opportunities MBS clearly quarters higher of stood point. lower at think the that that we out said,

the moving And higher we so that against we rates. the our big around picture opportunistically this specifics the And your add absolutely to I'll definitely We've things on recent move continue AGNC's higher. time potential before do will of on and shocks. added hedge did And follow-up add value? add coupons and leverage We've protected I line we and those protect to of over side. opportunities. And how those are options. kind bottom deployment portfolio capital higher think and against let that value our by portfolio Chris the

Chris Kuehl

specialness just cost ROE specs single-digits currently. rural on higher I'd before very coupon the So, both without is TBA and convexity coupon add, production high gross

TBA relative During of sort that a higher spec cheap and think XXs both specs pools. the absolute positions production coupons margin, in fair go well soon. quarter, technicals on But say into the the coupon in reasonable production value And positions shifted coupon we've balanced a shifted some valuations in a recovery second it's on of coupons coupon likely I quarter the point where given But pools, we've and against this of given strong as coupons now. valuations, very pay-ups really of the positioning quarters, the done lower to few very, into as outperforming that significantly has late. of over of coupons said, lower -- of still That worked widen converted we -- likely aren't the equation trade reinvestments Gary think our mentioned, out versus I'd we production lower to But to amount last as has performance occurred out fourth we and trimming and backdrop TBA with mentioned, a as XX-year mostly rolls. sharp coupons the positions well, given strong within our few anytime that's exceptionally TBA. still some production I will spec

Eric Hagen

you good answer, appreciate for guys Thank the it. very

Gary Kain

You’re welcome.

Operator

comes George Please KBW. And our Bose ahead. today from with next question go

Bose George

good guys, Hey, morning.

to Just Eric's on follow-up question.

you contribution into said TBAs? you go from Is You basis the just Can ROE? to high-single-digits. So whatever the said, the X.X% guess, the in X% benefit? ROEs a I like XX point that another of gross XX

Gary Kain

Yes, sure.

last wide So, rolls in traded have range basis it, few months XXX call as basis XX over a points the points to much as repo. through

basis basis end around of For XX to remarks, roughly I are from X% specialness earlier trade cheaper to adds of better I upside Yes. as financing rolls mentioned do there's the that my production rates But currently implied gross context XX to the points in I ROE. towards on rolls do XX it's -- to here. for range think points think coupons repo.

of last little quarter I extreme get to a enjoyed half months. heavy better of positioning the we that fourth for think the given in levels six part the the started second the

And so long-term of to better I and more rolls I more improve foot positions or we do with pools be run said, think in think converted get think line some norms given trade the given the policy. type transient the which current from just than QX bit I but current here levels, That don't back do help. could averages a historical which long less will are exit or levels,

Chris Kuehl

rule that specialness, about of every ROE. points on thumb is X% XX it's basis And quick per just for a of

the adding adding rolls special -- it's basis special points, XX points you're that's if ROE. it peak XX if was At points if are it's basis basis X. XXX absolute X, you're eight you're adding special So, where

to way just it. a So that's approximate quick

Bose George

actually the from you about obviously in go variable return Okay, you great. Can for see to is And other also to talk here? just backdrop leverage you That's leverage. the up very then, helpful. noted the need

Gary Kain

Sure.

short of again with is clearly Agency we're comfortable But very return the the MBS. think I appreciated. profile answer again they've risk

to leverage in of we the light our in. some We operate of do do alarms but be normally point amount real further some lower expect end around the down of think so, expect environment, of tapering toward maybe at But we're kind taper fair we obviously, this We that that operating range expect of volatility. the a tantrum. so out. do we that's there kind And would road false in

probably the the composition as We're portfolio plenty between we of liquidity Bethesda ever our presents. advantages TBA have company, powder. the that in and we opportunities present the Securities themselves, So, pools given history the with of have and dry operating more than of given

So to dedicate we've sector got outside of hopefully space. willing a look arise, that should has opportunities the are said, tightening filtered the as everywhere. they We'll Agency kind and at lot certainly within of capital the of powder. dry helps. agency But through we've But more

Bose George

helpful. that's very No Yes.

sneak one expectations. just just me Let in more prepay on

Gary Kain

Sure.

Bose George

a lot How strong but of originators going Also just with feeds a of lot curious this what new originators, growth expectations. think into what year? sort your happens thoughts are. Obviously, there's public that do prepaids a of of new you not -- with lot

Gary Kain

fourth In to. a I up, brief. quarter And lot go finally period more Look, decent far mortgage add I'll to little words, is. the a do someone is that trigger. nine don't going months and refinanced hasn't other something, the which Look, opportunity and had room a rates tightening segments been right? interest of rates a will other fast spread refinanceable particular And continue. of primary, actually huge the where secondary But we and for There's maybe they a Chris permeated had if still the expect more hand, think this of has percentage seen in to be to we pull and year. on lots necessarily even to why the for see burnout, have prepayments, of if great are have to mortgage XXth so month market, they've the in want we've in of

too just start what we from other is the to I if believe on wave. rigs especially that to case. hand is will So at to if prepayments past steepen early see the there look continue even would the say stay -- yield are out. burn reason curve it's we're that But re-fi we not here. say clearly to we the these mortgage But That's

on first So equation want the I think think if in upside I I to is prepayment that. don't more to the anything for awhile you add time know there than Chris downside.

Chris Kuehl

Yeah. No, a to banks that And quite few nonbank first some your lenders. lot mean, to -- I more for last guess just efficient share over sure will to degree. question, lost probably I have I years the think continue I

to beginning recent see burnout As rates the X%. Gary should about Jan increased slightly or XX% have equal. that the actually CPRs even two period. lower by that on are suggesting everything count most side were for mentioned, day of we driving positive the And XX-year else Factory some speed for CPR increased about prepay universe ports Despite indications about on

that ease spread the in maintain positive secondary capacity mentioned to sign. a lenders suggest of we volume. So as to more fourth the and points quarter And constraints that to contraction around have having price on basis was primary started XX compete are

so indication the have may we that seen is And an that peaks. too

prepayment be with market borrowers. the But drift signs here, of still primary secondary of And positive to elevated. secondary to still and passed incentive rates spreads most risk so higher with But an that again closer is for refinance, from to sure. some treasury XX% to of exposed should normalized levels through more net-net mortgage very rates

Bose George

lot. Okay, clear. Thanks a

Operator

Charlie ahead. Arestia go question Please comes from with JPMorgan. next Our

Charlie Arestia

I your wondering interest was could I'm Hi, a if you Rick bit on table. sensitivity good rate for about talk more morning today. everybody.

that pretty on severe bps it within direction. either XX. bps looks the more it's values XX impact up I remain a in Where like of think rate down, slide shock or but next stable XX becomes portfolio

growth in that you impacts ratio and shocks me tail presumably swaption understand portfolio the they of increased are shifts these severe? book mitigates the some Given hedge particularly risk. help the more that Can and the nonlinear rate why get as on

Peter Federico

our point in This Well, you the now Charlie. we're starts And you're of mortgage I portfolio right. hi, Right that where is profile seeing convexity we the profile Peter. mortgage in to you're to negative convexity Hey, certain point change. what close reach at convexity. the pretty be is there a universe. both happen peak where exactly mean, universe to a

exactly you further change interacting What ends value profile. table rebalancing you're this is you're get our the will start with with the that as market the how also of is in to seeing that sensitivity convexity that. distribution, to portfolio right So

XXX less up and XXX give profile this in options a example, XXX had incrementally that more us than they'll rate are convexity or up basis have XX protection points exposure Those get had. because of we have to XXX, up. last protection of but table because quarter their going this options quarter For or we we of lot once the we

more So the negative you bit in also rate reasons a little see to is gap have we of why which duration We're that starting exposure the here. table, a can't scenario. with this one down

to environment rate in that with the as profile versus rates the can recovery, opposed that right right. going one starting rates overall alluded managing signs interacts upside starting to fact you're down of rate, of in convexity interest now the as dynamic rolled change to And of This to up move economy rate reasons out, the more with with obviously, some table we we a our the we but of have risk incrementally our be to to the there's you're and downside. more show So pass the that it's exposure both think little do to why vaccine see starting market think changes, directions, portfolio in we the that's that. be to

to way. it continue manage to going we're so, that And

Gary Kain

just to is, keep of XXX rates quarter the the in kind simulation change down in floors biggest which the prior at zero. The thing from case, the other mind is

so, time X%. was the XX-year there below the XXX whereas last actually for around XX-year, the is And down

that But environment of Peter's challenge of into protect the that exposure that basis there under rebalance point, look, just different XXX. the the And those it to lot And back in an no points, lead rally seeing the X% clearly what a in basically would actually end to mortgage be relates the little But and of So that we base understand XX that if more sort board. would rates feel down in was brings circumstances XX is now, under part to years curve look, We investments now and in that that that it better scenario. a in and take would the right definitely increase against would a you're across rate all that of to right? shock. tables.

Peter Federico

very of one reasons round just the that opportunity find to in low change add -- volatility, the to options And we purchases of the added fourth a X.X%. out, Yes. only our actually portfolio. the did opportunity level. $X absolute about to made of rate the The to billion why But we interest during net attractive options we added attractive, those the quarter real was was prices be an combination quarter. the it And

Charlie Arestia

I Thank one helpful color. both. very some just you, in if comments the on remarks. prepared And in based squeeze follow-up could That's

guys are see spreads where I move what wondering I'm for here? think, are Chris here. room you wider from envisioning could mentioned, from to possibly still tighten scenarios where could spreads you they just materially

Gary Kain

around Yes. then still for positive I I'd Whereas headwind. income QEX, Agency than have types to sectors look a to across high along types. much relative And this Other of case. XX XX say, sort spreads and still also was that would QE. MBS IG, nominal just Agency much Agency to sectors. if say that QE the wide average are relative yield, XX DUS, periods like basis prior other tightened probably in two-month you benefits the periods current more like than still MBS. or whereas is MBS, fixed it implied basis period with of than during picture more you sectors value And being a compare Production so tighter to at prior points absolute coupon today QEX spreads to the points Agency where of lower look valuations XX other as that wide are wasn't attractive Peter much, volatility mentioned,

surprise backdrop the tighten. the from me the little spreads it see to more support room given wouldn't Fed, to a So, have of

Chris Kuehl

all across is spread significant widening as be would referred time will widening any well. I ways -- off, to but a financial when in expect but ways occurs probably out hardest that you Yes. MBS be to the think The this off, the that wouldn't probably mind assets I That's even actually that a hit. Fed and widening I keep But tapers. like

Operator

you. Thank

Please next today ahead. comes go Our UBS. Vandervliet with from question Brock

Unidentified Analyst

guys. Hey in for Vilas Brock. This is

the there tapering before your guess tapering, of portfolio, of I an Just it's expectations unlikely comment do is in positioning heard there? potentially? of think that you what way into terms that on a a where I thinking like even be on market downside happens, appropriate the early you're XXXX in the surprise? event would terms it's And that that out is And though that while and

Peter Federico

Vilas, Peter. hi, it's

specifics to concern market. then. thing understand a versus Let versus for environment XXXX. the I a with an think about XXXX, environment and in everyone to today it have But have the the dramatic the And I'll you're about how raising move bit think the about But portfolio. how Obviously, different different is is that today me was the important start important little is talk think, you Gary then I tapering. the point to about market's

They're deliberate, guidance. much is the Fed first transparent, inflation more target using position, current in Just their respect they're forward different. with much their to more

Fed's more the So perspective we to have stability rate monetary a from policy. with respect much

we about holding treasuries mortgages the their much today Second, on view sheet. Fed balance have and a much, different

And from have to discussion zero. billion-ish was trillion-ish not can $X they of how in to – trillion the can at If continue is Today get all back $X they to they grown all and you $X-plus billion $X that. had about recall, their whether the hold quickly they XXXX. discussion balance sheet

they And fact of which playbook position already did Fed's indicated know different policy, start after very late of reinvest then do they they'll importantly what last period. over sort perhaps a that rates. looks we a balance to have XX month monetary once that then year tapering in continue or sheet said, they is for this now the taper year, lastly like Gary have we likely raise going early from eight, what perspective. to they'll they're ultimately time So And really to sort we next a shift like. And that until nine,

think ultimately volatility framework more the pointed lower will some But which I So out, there predictable today, leads in to as be much it's market. clearly a response. response mortgage Gary

Gary Kain

to inflation, that's chance which first employment and very been forth in – to be that they're kind difference. but not still to last inflation happened So reverse a XXXX, the half I We've I'd the going roaring back. right. in possible and year, And quickly. as an The and you time pickup a two – early possibility. discussion. this – reiterate of want the not what It's in Fed. to create This Peter that are is it's We're mean a what then this anticipated be – different around, I'll quarter. specifics earliest half thing very, very happen. a to a they think is is economy rates doing has preemptive of were expectation earliest about is they and be – a But as XXXX the were a And makes enough. where case. that the direction, Peter don't it's They're okay? back Fed picking is require that's where taper vaccines this everything promised – is any just talking And mentioned, raising employments They big and I and going good not I to that it preemptive, and increase we not they which baseline has is that just anticipate add okay? would scenario is other of that so course. – what's up a good of was XXXX to in things there very a they but a improving. could give QE optimistic those a if some going right and look said, – to fourth things just go probably the The

the that. and specific it tapering, of the would at start and our where to are the time depends to the have market, I impact on to prepayment portfolio. the is terms going do tools in they – mortgage when is But impact at what it's time manage depend So where we say speeds on pricing

our We leverage. have

just in credit Fed's is across We of sort was It center on on you as agency at time have of the storm. the all last cash reality – the spreads, there the to impact is the markets being everything the hand, on the a the is distributed what's I outsized going equities, whole. hedges of time all and don't was look again, mortgage market. an need And this liquidity

impact definition on by the agency the So lower. space is

The the a in is reason CPR because was that XX worse were XX, little In didn't paying XXs. slow. higher. a it specified were side a specified than pools pools on because were of agency pools time from those equation why of the today's already and in are even many And paying environment other lower XXXX lot and the the are they double-digits There XXXX. benefit backup a or rates in that this XX good prepayment is specified fact it be will low paying

a a those in in mortgage negatives. some backup prepayment and rates So there a widening of is to offset spreads

And we're well. -- Chris believe. not right more now a are wider mortgages There levels for that discussion, a manageable is So mentioned, there I reasons technical reasons as as this to are that's at believe scenario. but we're know much to

a learned and we've little of bit one the is, thing market all seen these. in mortgage other The

will better think this be so And positions I around. time

It's a are on of lot mind. something that's our there So, reasons.

but positioning further have this it with our defensive we is And see is toward can rates, manage. the to that has balanced higher off. You to be there tools fact

Unidentified Analyst

about on you've that great. event, expected on is of bit talked Fed come -- has just heading and other think sneak in off And as some know it a fair And factors if I specialness step it as comments -- that to well. are could, more would some kind be to the I specifically that into before. to And on this play one then, then, just is in there little away. But just

Gary Kain

number periods going which mentioned, long go to starts $XX policy. I reinvesting mean so tighten tapering, after of when through continue think longer paydowns reinvesting likely currently or growing the likely as rate least But, tapering start sheet. -- Fed's no the balance that to hike. QE, even -- It's if Fed guide, complete are it's at a growing per prior Peter they're active the as with, to they're likely after can balance be and around the the they get billion the they're the to going -- paydowns I will running their be stop sheet, -- they month, down likely first presence, serve

And Fed the supportive cleaning mortgage so, technical basis still is billion that to float monthly going and with the it's $XXX another this be to mean, out on likely the by supporting will $XXX Fed incredibly a to probably roll respect grow position year. financing. billion I

the So back it's reinvestments -- being you're position cleaning mortgage where floor. are that's talking the about market trillion made into $X.X a

Unidentified Analyst

Thank Great. you.

Operator

go comes Our today next Cranston Trevor ahead. Securities. Please JMP with from question

Trevor Cranston

my in been maybe have of follow-up roll Most decline more Thanks. the asked, specialness. Hi. on questions so one

of and about were is of to XX, about see XQ see cost like XQ? XX think talk funds? of XQ. likely the funds negative where cost was I sort sort cost heading TBAs between And you special how into in of you thinking And how around average rolls fund slide are guys the guys it where repo. of Chris you today the at kind said, in of differential rolls XX side that impact much Thanks. just basis them looks currently points Can on versus bps you Looking

Peter Federico

Thanks the for question. Trevor. Sure

the of Another raising look question, And our a well helpful at in cost key funds we you're table of components. three cost good break funds. XX -- our inputs the is, and so key out where in into inputs two that's two to Table

said, XXs, was obviously fully then and third into the points The repo the given a points overnight low ended at repo to million, quarter now down fairly component points. months, reliably XX rates in It right improving. better it to to stabilized predict. $XX It's can't doesn't to Where cost quarter, range million First that repo improve. But there. XX over quarter is quarter to the makes that is $XX negative in we forecast where to been it's And variable was out be I XX in challenge. TBA that, last was we'll the XX expect that cost and which basis the that's we basis the going it But has it's that it exactly that expectation that mean basis are currently in rates XXX. a which the whether where I is out. as XXs was come described prevailing that directionally, from quarter to and and fourth going was range XX-ish evolve it improves the in Chris that wait that that first play and than quarter. have to think earlier is and XX What going

continue – of of it's movement be fact, whole cost in be but to But component, little will the because add our the a costs to cost, swap with directionally to hedges, bit lot to a In likely some to I don't clearly, last it funds. lower. there. close bit fairly I zero. add if it we going expect And respect It's stable, higher expect little a

it's or zero points the I two. be quarter to XX next going think to over basis

the plays more from from going any you XX give can't obviously, the to we it's improve we role precision But range. have point we directionally, Chris know, I there, said So think basis and wait specialist to because out. how what to XX see

Trevor Cranston

helpful. That's Okay.

Gary Kain

TBAs should But this higher, noticeably roll be higher expect – should point. the you on quarter the than to last expect quarter funding at dollar this you levels

Trevor Cranston

Okay. comments. the Thanks for

Gary Kain

Trevor. Thank you,

Operator

Please from question Barker Ladies go comes final and ahead. today's with Kevin gentlemen, Piper Sandler.

Kevin Barker

Thank you.

on for years have compared given in market like in it you in has appropriately made volatility the by all comments dividend year? lower lower outlook follow-up that that to you accepted how will dividend accept generally you you been could for that what lot the to portfolio there. past? be a started the past a flexibility feel that Do to feel saw maybe we and the just priced off risk that of just the be the market about, a yields be your of Do dividend, the market risk prepared the is Just the yield and point lower

Gary Kain

It's sort the of markets not market's the broader category probably late worded that and equity don't pricing way XXXXs. REIT question. interesting, I different than long is And in it's say, time been positions. mean just of since could longtime, a I a you I'm different mortgage the sure sense, the the in today a space. in

is to is, And And management over management, responsibility markets have run a obsess so like investors evaluate your short and how I what in those, in long to of in be in say necessarily leverage, received those would it's time. think the I'll our from we the terms have going been just for what we terms perspective, confidence to to very I mean, it's about and would over question, not that's run. trade-offs our the risk say, do make easy. best and of it – very like

– talked they those decisions value you for long-term trade-offs those in, or category risk yields investors trust just of where track we should be kind in that REIT will are think It people time, over like over all not be that. by that peers the this record be it with obsessed given necessarily and very interest the dollar couple But We're it's think think the that on would raise where mortgage dividend income, a simple that over is for we the are short and and It's our time is to here. kind or other Given that management be received we would sometimes of are, make the why where but mean, rates making prudent stuff I record space. we good yeah, long run, stock getting and be quarter a it right? our net management about well and won't vehicles prudent we We like stability spread do. run – of – our track understand and about generate and received to think to two. well the we

the leverage we it, help in decisions present come rewarded I'll short-term of the over not – shareholders. but that other – be will about now decisions, try by shareholders, to not especially the our – back be reward will time know net and received will market, it will look, you to And that obsess But long-term So, be can't with the think reaction market. but company. markets, you enhancing today's made our in value about – but hedging preserving you even and try in stock to we'll

Kevin Barker

have been answered. you. Thank questions All helpful. That's very my Thanks. other

Gary Kain

Thank the question. Appreciate you.

Operator

Ladies over concludes the and question-and-answer I'd gentlemen, for session. remarks. turn like this back conference to to Kain closing the Gary

Gary Kain

everyone to talking look next their like AGNC, we quarter. again in for thank I'd interest to and to forward you

Operator

you, you Thank This thank all sir. concludes conference for call. today's attending today's presentation. We

day. now and lines have may your a disconnect You wonderful

We use cookies on this site to provide a more responsive and personalized service. Continuing to browse, clicking I Agree, or closing this banner indicates agreement. See our Cookie Policy for more information.