Earnings call transcript Q4 2022

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Operator

Good morning and welcome to the AGNC Investment Corp. Fourth Quarter 2022 Shareholder Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Wisecarver, Investor Relations. Please go ahead.

Katie Wisecarver

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

I’d the the of statements the to Securities This forward-looking forward-looking sec.gov. reports I statements recitations like Before included Act. begin, constitute results actual any fact, review Securities Harbor forward-looking extent be included subject are required and to AGNC. and the presentation those presentation forward-looking slide forward-looking of website at without to date in differ are historical the We the Reform contained conference corresponding Litigation of Safe Private protection Commission. presentation by to those to are contains subject provided statements meaning that, beyond within to are forecast law. they on by of not Act differ the call statement. Certain to in SEC’s unless cause of periodic statements could available our and control of many factors the update XXXX. intended Actual that change the Exchange from are and materially this are impact Reform obligation the could factors All from this AGNC’s statements materially the All Safe notice. results outcomes such due as in made the statements to disclaim Harbor of only with filed Copies

and Development. Officer; Sean Vice and Pas, Vice Executive and Chris Non-Agency Strategy President Reid, President, Kuehl, Vice Participants Officer; on include and Director, Chief and Aaron President, Management; Bernie Officer; Chief the call Investment Executive Corporate Bell, Executive Vice Federico, President Chief Senior Portfolio Peter Financial President Executive

call over With that, Peter to will turn Federico. I the

Peter Federico

that sizable levered environments rapid you, Throughout rate noted income are the we challenging fixed our XX-year interest for most changes and Katie. investors. have Thank history,

these transitions most favorable environments. investment our however, Importantly, preceded have generally

one be ahead durable favorable detail, of in and the discuss could will investment in greater I AGNC’s the As opportunity history. most

move experienced. rate XXXX the as treasury in XXX XXX To the was more to the their historical in across fixed markets, on funds decades. in context, basis For points. yield in worst XX-year yield close than put the over increased two XX-year income the mortgage the that ever moved higher the to pushed by return was sharp treasury the curve XXX in months, Fed federal The annual the increased basis points worst Interest in X level on just years. rates total performance the years XXXX rates treasury increase highest rates among materially

XXXX index often policy underperformed return its XXXX. on MBS last to to peaked stack widened XX% other negative back monetary at downturns. the the macroeconomic treasury, dating at during year Agency when was across case year to in in MBS seen These highest conditions and the October the record September was point. worst Agency uncertainty classes and asset on challenging spreads the before. This the market mortgage as fixed XX-year was total rarely indeed Similar coupon significant levels income

returns On we uncertain our attractive extraordinarily call, market third financial the quarter investment and earnings between tension highlighted conditions. highly

decline the weaker rate led These in of the to allowed At income basis. pace a investors MBS volatility. which tightening, same slow materially. We data Fed investment inflation opportunity environment Since levered unique in unlevered market positive fixed interest the in and the expectation on shift investment emerge. developments policy that noted the recognizing a favorable attracted This back that investors time, has eventually uniquely both time, with monetary turn to to also would sentiment markets. our bond coincided improved available a Agency positive

MBS of we strongly believe today, outlook question Market investors go likely favorable? not is like revert market rather We to do XXXX time in happened, for We back or it beginning what November latter. for Agency characterize conditions the But recovery XXXX the where the is the linear. do the positive Agency to not key but believe challenging underway. shift over the more shifts is the said that occurred Will this bond evolve course, of for sentiment from The MBS. we believe and the recovery marks is market are that in here?

favorable several for positive outlook by MBS is dynamics. supported Agency This

significant remain standards the years. investment that is they as First, This represent even such and funding in to occurred a in last be of spreads levered averages. welcome supportive given fourth we wider the to though generate MBS returns and AGNC development attractive than over historical opportunity. ability continue the remain will a investors AGNC Agency spreads tightened especially wide has compelling improvement quarter, by our believe historical for shareholders time. true several This for for would tighter, over Moreover, biased while previous

the a limit Ongoing even and Fed MBS supply challenges Second, Agency purchases. housing year. organic MBS of the outpace likely market slower Agency without affordability supply for this demand will the will

slow will activity. on addition, be Fed’s In the given refinance runoff minimal extremely portfolio

Third, demand materially. pace more moderate demand reignite of has pauses, for the bank increase Greater to should increases for a stable slowed continues data income point rate MBS is fall interest already more stability the of interest a range and volatility is rate rate inflation monetary the economic wider and and If from broadly and investors. interest inflection outlook Agency poised fixed could to decline. Fed rate policy. volatility in nearing The the Fed securities

rate the stability So to Agency for improving investor summarize, MBS. demand, believe strengthen we strong and outlook manageable supply together interest

years, unwind favorable, With with funding be next than without durable attractive compromising for expected long-standing the environment more shareholders portfolio over mortgage this risk spreads management could previous discipline. positioned also gradually our to returns Fed several norms historical well episodes. to to AGNC and prove its generate is Importantly, above the conditions

financial our Bell I discuss With call over that, will results. to turn the now Bernie to

Bernie Bell

Peter. you, Thank

on per our of XX.X% of for of Economic share. our and strong common was per was increase The an X.X% equity book declared comprised tangible tangible in quarter of AGNC of comprehensive dividends the the value fourth $X.XX total income For quarter, $X.XX in tangible per and net common our had the by mortgage $X.XX share treasury-based share. for between hedges. quarter spreads in assets increase of driven net swap value tightening a return book

for from compared Average the asset As leverage tangible due X.Xx to in quarter, net book Friday, the tangible down our third book for XX% as tangible to approximately X.Xx the for net the quarter was third of last quarter. value primarily up improvement balance. a year-end equity, Leverage of equity was lower tangible at X.Xx X.Xx and value was January.

fourth also During through offering $XXX approximately equity the opportunistically our quarter, at-the-market we issued common million program. of

function The repo $X.X higher asset smaller roll cost decline base, quarter. MBS per the catch-up share Agency equity was As we had $X.XX of dollar funding and and income, our from the income, and rate higher primarily for quarter amortization, roll per which of lower unencumbered million $X.XX spread quarter. tangible billion and of of for income XX% the and cash yields share our swap was excluding higher Net or for end, dollar quarter interest credit asset a $XXX third offset unencumbered totaling securities.

averaging the X.X%, the modestly Lastly, increased X.X% CPRs the end of as quarter our CPRs to actual average for life while slow continue of projected quarter. meaningfully to

market. to Kuehl now Chris I discuss to agency call the the over turn will mortgage

Chris Kuehl

Bernie. Thanks,

inflation decisive that and XX-year QX wider marked solidified MBS X-year turn X X.X% policy before spreads and levels As rates basis treasury advantage retracing Peter hedges a on as is fixed Fed to points coupon spread tighter treasury more to The the income coupon took in highest discussed, yields of for peaked XXX nearly sentiment for evidence turned production of and to on the October GAAP slow. in being blend Interest years. move than October par yield outlook a XX markets. agency reaching Agency in with widened before the as investors beginning

Early coupon in higher quarter, materially the MBS lower underperformed coupons.

coupon made fixed as underperformance stack improved, the bond entire coupons of early swap-based flows only with for the treasury the outperforming production However, marginally much end behind to income quarter hedges. up coupons and index-based lower fund

the During optimize MBS. with continued XX-year production our bias coupon to fourth holdings towards we quarter, a

As our of $XX.X December totaled XX, asset billion. portfolio

hedges. was time, the reaches and of out the our during our At share to further quarter portfolio longer years. as totaled greater short-term activity relatively our its quarter portion hedge our did likely Fed the of Over points a although was curve. level, gradually term X.X we will desired hedging shift hedges move opportunistically hedge will end, towards $XX.X rate duration hedge minimal, gap decline and ratio a the Our composition billion

and economic extract still and funding current in significant expecting spreads an the XXXX the this combination the are reducing during mentioned, than is what its prepayment be Peter attractive spreads, tightening, levels, the the year are materially low markets the we durable for strong returns risk, value sheet. outlook production believe wide in The investment we to fourth earnings Despite From Agency over coupon will we was for of As a time. average levels has robust created from but do Fed MBS favorable. expect XXXX not balance outperformance wider quarter, environment. last spreads wider when on for MBS

Aaron I call the will now to turn to discuss over the markets. non-agency

Aaron Pas

response and sold and spreads over to improved. as securities in total billion. the strong about $XXX of million a non-agency Credit portfolio capital the Chris. sectors we eased the opportunistically for most data fourth outlook across tightened with quarter structure Thanks, year In ending performance, the the inflation the economic $X.X quarter, in

now allocation our holdings. non-agency from residential of remain or from we house composition are reduce price of current portfolio While seasoned perspective our credit our significant such, a comfortable and credit our very amount and our loans portfolio with backed as reference by we of The did appreciation. majority and credit, holdings a benefit specific

the side, enhancement. our significant of credit vast of are by commercial the levels On supported securities majority

year-to-date, residential mortgage The dynamic to forward, both to contributed particularly remain relatively inflows into expected and income. in Looking of supply tightening sectors the low. issuance fixed has spread backdrop is against commercial

most trade more spread Should backdrop. inflows accelerate, for As bond associated expect the rates product would spreads anticipated. a directionally lower severe fund than material recession be this with against to barring a we result, currently we supply favorable repricing with a expect

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

Peter Federico

will up call Aaron. your the open With that, you, we now to Thank questions.

Operator

Please first go Abraham I UBS. Vilas Excuse the ahead. [Operator question from The apologize with me. comes Instructions] for inconvenience.

Vilas Abraham

Thanks And everybody. talk also, scenarios for a duration at know different there? book about what just the bit question. in this And you the did tightening hedge are guys Hi, net stage little drop bit more you’re a thinking just Can about quarter-over-quarter. the then the the cycle? I

could So Thanks. on if touch too. that, you

Peter Federico

you’ve difficulties Vilas, portfolio hedge I seen yield portfolio, us is it morning, hedge like sort sort portfolio environment it to our What correctly for we the And alluding a our Sure, the apologize the this has been, aggressively good with monetary think the Vilas. morning. the In we’re is to policy do curve technical environment, again, high with for you’re respect of economic at example, an and But that to Fed shift level. hedge invert. in. to tends where tightening of

you is our what been X debt Fed that monetary saw of because high as repricing us time. tends has the a ratio over policy protection short-term a the our hedge the part certainly so front-end do load And lot tightened curve aggressively to X-year has to to the sort of underperform. for of And and the us give to part with hedges that’s curve operate that the more against very of also then case

a alluded bit Chris fact, to In little this.

the the monetary repricing further where be there easing to and ultimately, the more they and will to the is pricing currently aggressive eventually getting than a are from even and point evolves the pause close market the position going looking are in. down they where road, then As market will point policy Fed

positively. look You hedge being again with scenario, hedge ultimately, time front curve will tend And be to to evolve the the it’s what is is and we yield inverted, that us fewer environment. obviously, the curve with shorter-term when of that could you of hedges to more be history, I back as in unsustainably ultimately now, curve in because our think ratio outperform. the inverted end a part to over will curve it’s as yield the than do less there’ll expect And going obviously, that the position if XXX% be operate a time

hedges. that we share longer-term a portion So position of hedges hedge has a benefit smaller a from shorter-term would in greater of having

Chris we gap, that. bit environment. duration the are right, about On duration gap a with little can you’re operating slightly a in talk smaller But this

Chris Kuehl

driven quarter, points X.X I’ll XX-year just mean, rate that The during also during the gap add. by quarter. within majority a about the MBS the declined was coupon mortgage year of duration par XX shortened basis repositioning portfolio. into I and coupons our about the of higher

Fed about and – the high as the there we’ve the and of trade maintained our Peter to that’s is much And that, duration so relatively a only based curve And best to of key our by front as policy. a rates, shifted Peter’s of as curve risk a the great without aggressive effect on there we policy, comments, we too, why is don’t trade. duration which our X.X on shortened making portfolio. just spreads, of echo a just of portfolio of the bets mentioned, hedges to rates or of treasury ratio rate correlation biggest And buckets activity end lot Fed hedge have duration had aggregate the gap. year. given a hedge asset of the I The spreads shortening between longer a mortgages obvious duration is the rate portion

Peter Federico

to just around is XXX. And to now that Yes. XX-year last with add at the point, right, Chris,

little the market. the obviously a rally risk less in worried interest We’re rate about

it range than the of lower to higher the end closer seems to XX-year the think probably the be of the I end range.

with a more we’re comfortable the So being time for duration smaller gap anyhow.

Vilas Abraham

just And playing just buyers talk out who the demand are see also year? that incremental seeing briefly you’re you how this can dynamics you that through

Peter Federico

what investors. still quarter became the really broadly of the going it’s income to supply point came was just is alluded Yes. dynamic. But fact will to dynamic speaking, attractive, I we’ve is there much momentum the reasonably much at wider demand there lots think fixed organic have of a I you headwinds and versus in from as really dynamic couple billion. seen the the be an favorable fourth really supply shift this be the given that a of supply Well, mentioned, – a positive, But that the And organic perspective. obviously, to supply to where I look more in group hundred

saw we inflows significant in so XXXX. first fund And time bond for the

In close for to look if in like year-to-date, positive. is fact, think number of flows But outflows December, are at $XXX I you flows all the the negative billion already ‘XX, fact, look fund I inflows. in you something of the if think And billion they of they in November bond and at decidedly year. were probably $XX

from fixed rotation, out from I income fixed particularly other think of is the share of equity think, perspective, investors Agency I that classes to and into a income is MBS, greater into So asset portfolio continue are obviously, much going outlook against a securities. the markets favoring

reemerge that of clearer point continue. a we’ve and at the that demand. as become seen economic I gets or think there market. a and outlook high-end is as I the think that will banks stabilize demand improves which that least market chance rates – So could is more at some comfortable to stabilizes, rates, There the Obviously, the source

supply. I could the not think in really for particularly our are that’s So together the why months. buy those seasonals a spreads that to be stay things dramatically, next to view supply of is trend tighter could bias outpacing perspective two over place short-term, the some but a time, over demand period are And think to lead I from somewhat likely because good several also the

Vilas Abraham

you. Thank it. Got

Peter Federico

Sure. for Thanks the questions, Vilas.

Operator

comes ahead. question from Suisse. with Harter go Doug Credit next The Please

Doug Harter

thanks. Hi,

Peter Federico

Doug. Good morning,

Doug Harter

put money of the of the thinking you Can to new you opportunity about morning, you’re good talk about the fourth were ATM highlighted? return with kind you your appetite – then capital? can that like quarter so, how just looks to about early to environment your It given work, kind in raise to less you but active talk appetite

Peter Federico

I little at that activities about activities stock Sure. capital continue we question. issuance raise common from Bernie key was our We and the shareholders. appreciate fourth capital of a the our will think of the alluded But from base. look perspective is markets quarter. did our of to issuance existing bit I message capital It to perspective in the an X% it.

I think always that. done we’ve

means contemporaneous And today, the given don’t that, issuing think is where size is that it that that for look getting sort benefit, a of that. that the we to from at to issue I of believe But if the is of value the that capital stock what perspective the basis. We will, shareholders real-time that is on a accretive And is. of markets in will we’re issuance. book the know capital we’re shareholders. from transaction fourth our example, you perspective, value I approach equation do issuing from did the capital. not our to quarter. stock AGNC is perspective perspective shareholders. relevant price one is larger, in saying, know existing that we our inputs we difficult time key from to of going the book scale the it’s for We We do existing that accretive a sake that to when Obviously, it issue what when it we continue and versus existing at

leverage that But we capital there more an you’ve shareholders’ is the course about accretive an our we desired we in example, course benefits the we existing over that our earnings perspective are can $XXX Once to operating into our capital million try shareholder leads a – at at to question at we think shareholder second meaning consideration million transaction. as the of existing that of is level, it’s the source if quickly want to be think of way. from us us desired of $XXX then about, then and the And last capital, sort book capital level. then cost-effective are about to XXXX, seen that of existing perspective. important So that’s adding value and our be always a from capital? prioritize as over desired and considerations existing generate year. a the used these, think, shareholders, leverage an the from cost context same is, the I of it to really other I total leverage for begins Obviously, ATM program continue perspective. is it, that emphasize That’s in from such perspective, consideration leverage leverage very my From the important the decision same deployed that will level can that important go also the accrue

So and transaction ratio transactions a accretion when we’re capital low-cost looking versus that price-to-book at value is from that are that a from book the some of very possible. other

that accretive price stock look the or So the perspective. put stock book you fourth those tell from that proceeds to AGNC did were went value essentially was capital October during we with the raised the And time update period from X-week capital We can We we considerations can late the of price, I X you and to at work tell fourth the believe October. raised back in those at at. the able you around was quarter that that where we are also look transaction in quarter. gave a if and coincides that that, in the

it always from shareholders putting can we are think perspective, I look conclude So think you a at first. that the book accretive existing a perspective. from I But value you was that, when contemporaneous

we getting work level the capital proceeds We’re accretive the When for leverage larger. because our we desired we capital, raising to we sake the existing can shareholders. trying same quickly raise it’s as existing and raise think not think at or sake it’s of of those to put shareholders, to our capital

So that I you. helps hope

Doug Harter

of leverage that or guess, to Absolutely. how – I down you drill your kind what in on of And on is points. one today versus your just characterize of kind clarify the would target? to

Peter Federico

our portfolio have the week. you $X Obviously, because portfolio, consistent a quarter-to-date, leverage and from is added of value. up moving but the target in perspective. for XX% look that changing up We you down, terms But value back to for as time, it’s billion October low our and mentioned, sort our that to value, added to right last end we’re XX% increase the that’s book that’s I broadly our numbers, don’t because Bernie we fourth example, almost our portfolio book billion from guess now. we its our Well, give another And end Yes. asset the do we’ve book right with added hard worth October at of point in $X of sort in speaking, asset or the was good at risk securities. environment market this a our the as of consistent as of balance, point of the if as, about have our going $X now, the since the that because level is interperiod quarter. around about is was with was – But to when of end from added highest a we’ve systematically the And about in billion. problem of

that we’re that’s leverage our we consistent the we for from much MBS. increasing the year, were – is also outlook X.X% that at you reported end it’s So our Agency more but last of with telling sort constructive of where what systematically

Doug Harter

Got it. Thank you.

Bernie Bell

Doug. you, Thank Sure.

Operator

from Rick The with Instructions] JPMorgan. question Shane next [Operator comes

Rick Shane

my taking guys. morning, question. Thanks for Good

Peter Federico

morning. Good

Rick Shane

coupons the An a QX spread. points, update. you interesting today versus basis update the and at the market showing QX X are X-point spreading In XXX and we coupons presentation ‘XX ‘XX you QX there in observation, four look if showed the XXXX, market market agency

You working have history. but are point than the have in much palette your of you broader the now much, at – now challenge any a you probably opportunity, off

is are that is in assets? choosing upon think attractive by attractive that within solving is then Or the much sort financing Are right where what’s of you what what is available you’re to spectrum dictated and the duration? and you hedging based Vilas’ for back how finding And getting asset market? to question start of the conversation, playing you

Peter Federico

Sure.

the talk statements about is Chris stack. about difference and speaking, talk But can in Let respect the it specifically and no me coupons answer, couple generally a high-level he’ll then the – funding. with to and the of make

when exception really is are Now going shift to TBA. our is greater of TBA to obviously, share a obviously, specialness we assets the to that high then

So, or profile option. outweighs sense, difference the the the in a convexity funding in delivery advantage the

active, where so specialness high And in issuance very environment is tends the very, that beneficial. really be an to and really is Fed

are shifting We out of obviously environment. that

So, we away, And essentially been XX the as question that about specialness can goes now it’s a that is value best the where stack. of have the really across coupon fact Chris just talk active coupons.

You might have about judgment to return to the we total to from, earnings. a can think make sort where come that. versus of Chris going how as is return talk about

Chris Kuehl

Yes.

I tied than the at passive lowest trading has since very as to But rolls extent index-based gap currently diversification moving on the from And HCM profile coupons, coupon. coupons flat across tighter coupons depending much interesting. the to is convexity factor They at coupons, add current much of of in to [ph] out stack And a continue them. likely it total stack trading accelerate, basis XX held the for most the with spreads this also so stack, certainly to can need and points by tighter To float coupons of flows So, sloping are point, liquidity at production are wider return bank some middle higher they relative mean coupon value upward a great spreads just Fed is or marginally very up point. at but and fund mean maintain the lower and to are trades still portfolios. the to I the that driving solid the and belly it which production spreads. through is levels reiterate not are up funds we around the technical the exposure tighter window. Peter’s the bond potential. or continue will repo But

And exposure distinct the but coupon likely higher so the with continue across towards we coupons. stack, will bias to have

Rick Shane

isn’t the you if with mind, dovish move from to neutral are a the we either of a you next are hawkish more trading of durations, are the premium some environment that’s stack? distribution speeds. substantial Got paying this isn’t – look much up terms significant this in you tomorrow, how divergence thinking in might significant a about but discounts or look as it. securities again, going And building a the when you prepayment at but and got speeds stack, to And potential this month, see at at in portfolio at you coupon environment, divergence versus point, some that

Chris Kuehl

It’s perspective, as on just of was X.X%. for XX-year – weighted Yes. average our the coupon a holdings year-end,

So, XX if say, that’s market. round let’s X% just basis primary a for rate note of, assume spread numbers, rate you rate points a X% a note in

average. XX from rally on risk incentive prepaid refinance basis perspective, point so to And portfolio, have rates a average, basis on would take on in from XXX a the primary it our here for point portfolio to even

like few have are XX coupons cuspy And but we more wide do risk nominal that trade-off. and priced those return a here, and spreads in exposed and holdings positions, from Xs point certainly obviously, as X.Xs basis historically X.Xs at for rally Higher a and they we are Now, trading well. are it. to

also prepayments, months S-curve what more coupons another think higher of effect do be a a were waivers that very LTVs months, perform then that need call flatter to now going some inspection of with over somewhat that today the likely incentive effect terms and and different XXXX. in will media experienced at XX I think next on will find And the house over into And I that course, shifted originated to to interesting it was levels. grids. mortgage loans if In of of outlook. for is these housing in I are very see rate further we think these costing we is high-XXs next the it’s going – how be few forward stay LPA buckets it in XXXX. X% even the curve have themselves modestly, higher low-XXs GSE prices factor shifting are different the into XXXX will than required the fall weaker than X% the that property out refinancing insurance the it, in of and that XXXX, down If we see response, in

number further think on to a the will least lot that a of little likely I is prepayment or in a and of response capacity are So, there But out the hand, origination other forward. a degree there machine. then factors desperate to at need mute some the the feed system bit going shifted

little is. work there for be so will And that better I lenders aggressive willing to and margins capture volume think to what do just

something that’s to to going evolves the So, how interesting next be it see months. it’s very few over

Peter Federico

Chris’ incentive if add Rick, rally a that, XX% think in portfolio outlook would portfolio sector, because the to supply mortgage lot universe which basis only – a refinance XXX XX% a would basis a when build the obviously think just mentioned to key on as about I part Chris could Fed’s this when a you and But our the of private mortgage we XX informs in XXXX of is for think basis it the XX year point mortgage assuming of point mortgages of I to our the that. ability And mortgage the point point take in today, have rates, rally refinanceable. for universe It rates point move, XXX to a basis a rate of have only X% about XX%.

which that of reasons more over that refinance So, supply the that, is going about optimistic about activity of near-term, we informs us to mortgages. the I of one lot are a why the are think we see amount the

Rick Shane

stack the of where And the I if the fair. same. circle at to and the the XXst, the top premium the bottom totally in top XXXX, stack it’s you exactly to started, is bottom compare Look, the actually ‘XX in as of December and back of

a So, market is I behaving in mean different way. very the

at are were of even they So, risks end stack, lot the a the different high ago. few the than years a

Peter Federico

and return And that see obviously, they the carry, be they potentially a not point because the inflows, total made universe part to great about going fund bond really trade, coupons, the such are return some a the Chris could potential. to good lower have that we total extent but are of huge

Rick Shane

much. guys. Terrific Got so it. Thank you

Peter Federico

you. Thank Sure.

Operator

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

Bose George

Everyone good morning.

Peter Federico

Good morning.

Bose George

tightening ROEs? and you current spread the hedge talk quarter-to-date, spreads levered Given can about just

Peter Federico

Sure.

example, spread But think of long-term to ones blended can the at that spreads, look sort guidance. really I I coming basis. current a like current it’s more simplest consistent at want the look XX-year them I look to way to. to keep them, we back hedge easy like about, informative further, it a more of always and when to bunch And perspective, at just look probably look from which XX-year that You better for at to treasury-based spreads, different think very you blend coupon XX-year the ways look and XXX swap coupon and SOFR-based us, of for and as think I if portfolio. between one hedges in to X-year a probably around at blend with you is at current you on basis of a at points. to It’s coupon look our But hedges. for would X-year that’s treasury hedges, spreads a

why analysis us, of point get in of think are we our it’s to you back given the probably I you structure, around basis around reasonably cost sort current environment, X%. add a And something subtracting is you are for with around the SOFR, X% leverage is current XX-XX points coupon which returns the compelling. returns which yield this believe very position points average the Xx, still maybe close XX% we If can a as plus expected blend, for attractive. only of those points, starting XXX-ish XXX really look in XXX basis today, basis neighborhood at of

sort a basis on conversation higher coupons mark-to-market about but starting had we and just informs that’s different that’s of now that’s return on marginal our portfolio you good coupons, what opportunities. sort and are of So, the for for Again, seeing point. we a

Bose George

Great. Okay. Thanks.

Peter Federico

Sure.

Bose George

And just broader question. then a macro

Just the are your curious what informs debt and your whole that of kind just positioning? debate, feeling how thoughts

Peter Federico

our to the on. a Unfortunately, pretty meetings. I is what it’s it with fact in the coming probably to needs we a that in we more really contend thought obviously, outlook it’s much good or actually we going going a – it’s question. three couple rate do next two to a done think lot given in have stability Fed the with be unknown year when are goes And that Well, as time to big the would have

to So, clear and will go a not have with ceiling deal the all, lot interest year, as The is of which year we debt the at we of later drive all. the in obviously the it’s challenge uncertainty. middle with may that direction if rates at

case at the in in perspective. from you because make last the of or could other higher the led to outlook rally rates. potential look a And default episode the the of a treasury it I think to can You rates that credit convened

Ultimately, of means just So zero as to conditions think risk gap, broadly, get to financial first through as our get to that, our us as uncertainly close deal relates we uncertainty reduce more to I operate for to bit the it resolved, to rate likely have more exposure. a there that to duration is interest will is will that long unclear but very going with how when rate we before or might but you us particularly against will give go it with And be to the to profile, just generally, interest tend see take what us closer gets what market a more occur year. may and as uncertainty protection environment. we issue it’s resolved that’s resolved, the the we

Bose George

Thanks. Great. Okay.

Peter Federico

Sure.

Operator

BTIG. question line Eric ahead. with of go comes the last The from Please Hagen

Eric Hagen

morning. Good Hey.

how the structure you of follow-ups the managing on couple Just portfolio a and there. are

of portfolio? scenarios on Are that rates, And support of away of do mortgage getting? value think at of you the this where getting carrying? short value what you the scenarios add hedging could for side, short what – you hedges Thanks. hedges any any kind you duration kind the what level on And coupon see duration already do you mean there at premiums you think any specified which this are Just there from the then top just are point are strengthening you are could higher there maybe in are do I pools? point? in

Peter Federico

Chris?

Chris Kuehl

Yes, sure.

respect pools, weighting over will likely specified say TBA increase. it’s gradually time, would to So, with our that I versus

in sourcing fourth purchasing net basis, through range bit the in As quarter, our spec we convexity billion specified our on the during protection given Peter across a opportunities that But pools position is the added markets. this of good cheaper optional some after I pretty convexity wide shrinking so was rate than a rates quarter. pool generally pools position would about mentioned, scenarios. of speaking, majority far $X say, is that’s quite a low and

pools. be continue with to patient will and opportunistic we so adding And

repositioning done a and is over and portfolio we liquidity. lot of quarters, have return last We today positioned of the few a think very great provides combination well the and carry, potential total

Peter Federico

to that say the change would respect think likely with is short-term need on really expectation would evolve, well we I guess not that to placed. is we my more seen more I than adding that. And being need it’s the But wouldn’t is the your now, may could close that have this And think be short-term if in is that we starts gut And that for to to scenario would be Fed done. because to that that anticipate. the environment to is more expectation, about moderation a we those much view. my meeting, I And certainly we I the initially, next. scenario, Fed right reverse. think is to it’s could is on that and goes If there although hedges, there I question not But obviously our position fairly say currently we hedges, scenario increase protection. where much stubborn would Inflation a prove wrong prove we rate then our

Chris Kuehl

a you coupons and what Eric, drive tighter think expand had coupon valuations could or I question asked about and swaps also higher there.

rate still implied coupon on lower volatility. I is lower costs think production record levels. at Option volatility, the mortgages short answer is

in has potential the costs decline would likely implied certainly volatility a coming which in result bring in. materially spreads option so nominal to lower, And

Peter Federico

decline that And and that again, is a I think of, add just to is to key outlook last the why because our volatility. improving point part in

average XX of a you market perspective, X.X is more basis around day at around day. coming September, of look is Today, was end year. X.X To pricing you of look applied probably where sort in the was if this at X down. gradually at put level And we points or points pricing the implied at the an day. X.X it’s points volatility volatility, basis it are around been basis the that least a in per at If basis – XX-year points at September, on options back

XX%, come easily is production implied to lower, at to be volatility on So, could more Chris’ the XX the eventually and back coupons. market historical points and that’s to basis norm, lower, least meaningfully tightening going point, that of

Eric Hagen

Thank perspective. guys you great That’s much. very

Peter Federico

you. Sure. your question. Appreciate Thank

Operator

My the apologies to for everyone inconvenience.

I completed Peter like now concluding have would remarks. for the over We to question-and-answer to back the session. turn Federico call

Peter Federico

and And The in we is again, Well, everybody’s that a a underway. are very sort entering appreciate we durable interest And is of period to for reiterate, outlook attractive I agency be time ultimately, and the think improving. just today could environment again, recovery MBS AGNC. AGNC. believe we for

quarter you for next So, you speaking participating again we today. to and thank look forward to

Operator

call. joining for you the Thank

may disconnect. now You

AGNC Investment (AGNC) 31 Jan 232022 Q4 Earnings call transcript