NYSE:IVR Invesco Mortgage Capital Q1 2025 Earnings Report $7.61 +0.01 (+0.13%) Closing price 08/8/2025 03:59 PM EasternExtended Trading$7.60 -0.01 (-0.13%) As of 08/8/2025 07:55 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Invesco Mortgage Capital EPS ResultsActual EPS$0.64Consensus EPS $0.56Beat/MissBeat by +$0.08One Year Ago EPSN/AInvesco Mortgage Capital Revenue ResultsActual Revenue$18.82 millionExpected Revenue$44.71 millionBeat/MissMissed by -$25.89 millionYoY Revenue GrowthN/AInvesco Mortgage Capital Announcement DetailsQuarterQ1 2025Date5/7/2025TimeAfter Market ClosesConference Call DateThursday, May 8, 2025Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Invesco Mortgage Capital Q1 2025 Earnings Call TranscriptProvided by QuartrMay 8, 2025 ShareLink copied to clipboard.Key Takeaways 2.6% economic return for Q1 2025, driven by a $0.34 dividend and a modest $0.11 decline in book value to $8.81 per share. Book value per common share estimated to have fallen to $7.74–$8.06 at April 30, reflecting volatility spikes, agency underperformance, and tighter swap spreads. Leverage was proactively reduced from a 7.1x to mid-6x debt-to-equity ratio in April to maintain liquidity amid policy uncertainty and market volatility. Repositioned the portfolio into higher coupon agency RMBS (5%–6.5%) and increased specified pool and Agency CMBS allocations to capitalize on attractive valuations and prepayment protections. Maintains a cautious near-term stance on agency mortgages due to elevated volatility, while expecting a favorable long-term outlook driven by a steeper yield curve and renewed investor demand. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallInvesco Mortgage Capital Q1 202500:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipantsPresentationSkip to Participants Operator00:00:00Welcome to the Invesco Mortgage Capital First Quarter twenty twenty five Earnings Call. All participants will be in a listen only mode until the question and answer session. As a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin the call. Greg SealsHead, Investor Relations at Invesco Mortgage Capital00:00:27Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. Press release and presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward looking statements and certain non GAAP financial measures. Greg SealsHead, Investor Relations at Invesco Mortgage Capital00:00:54Please review the disclosures on Slide two of the presentation regarding the statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our teleconference transcripts provided by third parties. The only authorized webcast are located on our website. Again, welcome. Thank you for joining us today. Greg SealsHead, Investor Relations at Invesco Mortgage Capital00:01:19I'll now turn the call over to Invesco Mortgage Capital's CEO, John Ansplung. John? John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:01:25Good morning, and welcome to Invesco Mortgage Capital's first quarter earnings call. I'll provide some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q and A is our President, Kevin Collins our COO, Dave Lyle and our CFO, Mark Gregson. The first quarter of twenty twenty five is characterized by tightening financial conditions as both equity markets and credit spreads reacted negatively to anticipated U. S. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:01:56Fiscal and trade policies. Although inflation measures stabilized during the quarter, investors increased expectations for future inflation given concerns about the potential impact of U. S. Trade related policies. As inflation forecasts were increasing, softer employment data and fears the combination of potential trade wars and fiscal austerity would contribute to an economic slowdown led to a repricing of the market's expectations of future monetary policy. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:02:25The Fed funds futures market as of quarter end reflected a further 75 basis point reduction of the target rate through the end of the year. Interest rates dropped across the maturity spectrum during the quarter, while short dated interest rate volatility increased, reflecting the market shifting expectations of monetary and trade policy, while longer dated volatility declined modestly. Despite weaker market sentiment, agency mortgages performance was largely consistent with treasuries, with higher coupons modestly outperforming hedges as longer dated interest rate volatility trended lower. Supply and demand technicals for higher coupon agency mortgages were supportive as originations remained subdued given slower housing seasonals and elevated mortgage rates, while banks, money managers and mortgage REITs net added exposure during the quarter. Prepayment speeds remained at low levels given limited purchase and refinancing activity. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:03:22However, a notable decline in mortgage rates in the latter half of the quarter should result in faster prepayment speeds in the coming months as the decline coincided with the seasonal increase in housing activity. Premiums on specified pool collateral were largely unchanged during the quarter as the move lower in mortgage rates led to support for prepayment protection. Additionally, Agency CMBS risk premiums increased during the quarter, reflecting weakness in broader fixed income markets. In this environment, our portfolio produced a positive economic return for the quarter of 2.6%, consisting of our $0.34 dividend and a modest $0.11 decline in book value to $8.81 Following additional trade policy announcements on April 2, financial conditions tightened further and investor inflation expectations declined as concerns about an economic slowdown outweighed concerns about potentially higher prices. Agency mortgages significantly underperformed treasuries as the initial reaction to the announcement saw interest rate volatility spike sharply higher and risk assets sell off across both fixed income and equities as markets priced in potentially slower economic growth. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:04:41Further, hedge funds were selling U. S. Treasuries and receiving swaps due to an unwind of a previous trade where they purchased treasuries and hedged them with swaps. This caused swap spreads to move sharply tighter, negatively impacting book value. Given this challenging environment, our book value per common share declined in April, and our estimate for April 30 is between $7.74 and $8.06 Given elevated interest rate volatility and continued policy uncertainty, we remain cautious on agency mortgages in the near term. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:05:16However, our long term outlook is favorable as we expect investor demand to improve in higher coupons given attractive valuations and eventual decline in interest rate volatility and the steeper yield curve. Lastly, while Agency CMBS risk premiums may remain elevated, limited issuance, strong fundamental performance and stable cash flow profile should provide favorable support for the sector. Now I'll turn the call over to Brian to provide more details. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:05:43Thanks, John, and good morning to everyone listening to the call. I'll begin on Slide four, which provides an overview of the interest rate and agency mortgage markets over the past year. As shown on the chart in the upper left, during the first quarter, U. S. Treasury yields declined 20 to 40 basis points across the yield curve with yields on shorter maturities falling more than longer maturities. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:06:03The decline was driven largely by concerns over the economic growth prospects in The U. S. As fiscal and trade policy was rapidly adjusting under the new administration. The yield curve continued to steepen in April as U. S. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:06:16Economic growth expectations diminished further amidst growing trade policy uncertainty following Liberation Day on April 2. As depicted on the chart on the bottom left, the Fed funds futures market is now pricing in deeper cuts over the next two years with the target rate expected to be reduced three to four times in 2025 and bottoming near 3% in 2026. As a result, futures markets are now pricing in a greater number of interest rate cuts than previously expected. At the start of the year, only one or two cuts were anticipated in 2025, with the target rate declining to just 3.75% in 2026. The chart in the upper right reflects changes in short term funding rates over the past year. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:07:02Positively, the funding market for our assets has been stable since year end, with haircuts unchanged and one month repo spreads remaining between SOFR plus 15 to 18 basis points. Lastly, the bottom right chart details Agency MBS holdings by the Federal Reserve and U. S. Banks. As announced by the FOMC at their March meeting, runoff of the Fed's balance sheet continues but at a reduced pace starting in April, with runoff of the treasury portfolio declining from $25,000,000,000 to $5,000,000,000 per month and the agency mortgage runoff cap remaining unchanged at $35,000,000,000 per month. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:07:41Agency mortgage runoff has been averaging approximately $15,000,000,000 per month in recent months. So the reduction in treasury runoff essentially reduces the overall monthly decline of the balance sheet from 40,000,000,000 to 20,000,000,000 Given the reduced pace, quantitative tightening is now expected to conclude in 2026 instead of 2025. U. S. Banks added marginally to their portfolios in the first quarter, but we expect demand for Agency RMBS to increase notably in the second half of the year as deregulation, a slowing economy and a steeper yield curve provides an attractive environment for deployment of deposits. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:08:19Slide five provides more detail on the Agency mortgage market. In the upper left chart, we show thirty year current coupon performance versus U. S. Treasuries over the past year, highlighting the first quarter in gray. Although lower coupons underperformed, higher coupons modestly outperformed during the quarter given a favorable supply and demand environment as well as a trend lower in long term interest rate volatility. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:08:42The sector underperformed significantly in the April, however, as interest rate volatility spiked higher after Liberation Day. This increase in interest rate volatility reduced investor demand for agency mortgages and the sharp underperformance in risk assets led to a substantial amount of selling in the sector as money managers sold agency mortgage pools for short settle to fund redemptions and rotate into other sectors. The impact of these sales can be seen in the chart on the upper right, which shows specified pool pay ups over the past year. Specified pool pay ups declined notably in early April as the need for cash settle led to substantial selling in pools. Lastly, as shown in the lower right chart, funding via the dollar roll market for TBA securities has been attractive in the conventional 6.5% coupon, but largely unattractive elsewhere. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:09:34Our rotation in the 6.5% coupons during the first quarter capitalized on the attractiveness of the roll before rotating into specified pools in March. While we continue to prefer specified pools over TBA given their more predictable prepayment behavior, we will continue to take advantage of attractive alternatives in the dollar roll market as they become available. Slide six details our agency mortgage investments and summarizes investment portfolio changes during the quarter. Our agency RMBS portfolio increased 9.5% quarter over quarter as we invested proceeds from ATM issuance into thirty year five percent through 6.5% coupons. In addition, we rotated our remaining allocations from the 4% coupon into higher coupons as the relative value between coupons in the middle of the coupon stack and higher coupons became stretched. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:10:28Overall, we remain focused in higher coupon Agency RMBS, which should see greater benefit from a decline in interest rate volatility and demand from banks, overseas investors and mortgage REITs. We continue to focus our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments with our largest concentration and lower loan balance collateral given more predictable prepayments. We increased our allocation to specified pools consisting of loans with low credit score borrowers during the quarter as the potential slowdown in economic activity should lead to slower prepayments from credit constrained borrowers. Although we anticipate interest rate volatility to remain elevated and are cautious on the sector overall in the near term, we believe levered gross ROEs in the low 20% represent a very attractive entry point for investors with longer investment horizons. Slide seven provides detail on our Agency CMBS portfolio. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:11:30We purchased just $52,000,000 at the beginning of the first quarter as our exposure to the sector remained at approximately 15% of our total investment portfolio. We believe Agency CMBS offers many benefits, mainly through its prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Leveraged gross ROEs on our new purchases were in the low double digits, and we have been disciplined on adding exposure only when the relative value between Agency CMBS and Agency RMBS accurately reflects their different risks. Financing capacity has been robust as we have been able to finance our purchases with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation as they become available, recognizing the overall benefits to the portfolio as the sector diversifies risks associated with an Agency RMBS portfolio. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:12:24Slide eight details our funding and hedging book at quarter end. Repurchase agreements have collateralized by our Agency RMBS and Agency CMBS investments increased from $4,900,000,000 to $5,400,000,000 consistent with the increase in our total assets, while the total notional of our hedges declined from 4,700,000,000 to $4,500,000,000 The increase in our repo balance and decrease in hedge notional resulted in a lower hedge ratio for the quarter from 95% to 85%, reflecting our expectation of a slowing economy and more substantial cuts in the Fed funds target rate in 2025. The table on the right provides further detail on our hedges at year end. The composition of our hedge portfolio shifted modestly towards interest rate swaps during the quarter. On a notional basis, our allocation to swaps increased from 70% at year end to 80% at the March, while on a dollar duration basis, the allocation shifted from roughly 50% to 70%. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:13:28Slide nine provides an update on the portfolio as of April 30. As previously discussed, the Liberation Day tariff announcements resulted in substantial market volatility in early April as risk assets underperformed sharply and interest rate volatility spiked higher. Agency mortgages notably underperformed treasuries during this time as money managers liquidated positions to fund redemptions and asset rotations. In addition, swap spreads tightened significantly as hedge funds were forced to unwind carry trades amidst increased volatility, further negatively impacting our book value. We sought to reduce risk and maintain ample liquidity by selling assets to bring our leverage ratio back down to the mid-6s from 7.1x debt to equity at the March. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:14:14Sales were focused on higher coupons for a few reasons, most notably given their elevated exposure to interest rate volatility and also increased prepayment risk given our expectation for an eventual softening in economic growth and lower interest rates. Slide 10 provides more detail on our capital structure and highlights the improvement made in recent quarters to reduce our cost of capital. Further improvement in the capital structure remains a focus of ours as we seek to maximize shareholder returns. To conclude our prepared remarks, financial market volatility began to increase in the latter half of the first quarter as investors began to incorporate greater monetary and fiscal policy uncertainty into valuations. But our focus in higher coupon Agency RMBS and increased allocation to Agency CMBS mitigated much of this impact and resulted in a positive economic return of 2.6%. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:15:09Although increased volatility, swap spread tightening and the agency mortgage underperformance negatively impacted our book value in April, positively financial markets have stabilized as the proposed tariffs have been postponed and negotiations began with book value up approximately 1% so far in May. We believe IVR is well positioned to navigate current mortgage market volatility given our recent reduction in leverage. We believe our liquidity position will provide substantial cushion for further potential market stress while also providing capital to deploy into our target assets as the investment environment improves. While near term uncertainty warrants a cautious a somewhat cautious approach, we believe further easing of monetary policy will lead to a steeper yield curve and an eventual decline in interest rate volatility, both of which provide a supportive backdrop for agency mortgages over the long term as they improve demand from commercial banks, overseas investors, money managers and REITs. Thank you for your continued support for Invesco Mortgage Capital. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:16:15And now we will open the line for Q and A. Operator00:16:18Thank you, gentlemen. And our first question is from Doug Harter with UBS. Your line is now open. Douglas HarterEquity Research Analyst at UBS Group00:16:46Thanks. Appreciate the update on April. Can you just talk through the decision to take down leverage and kind of how you think about managing volatile periods as to whether you let kind of leverage float or you take portfolio actions like you did? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:17:09Hey, Doug. Thanks. It's Brian. Yes. So in April, we essentially took leverage down about 0.5 turn from where it began a month. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:17:19And that just really reflects increased uncertainty regarding monetary, fiscal, and trade policy and how those that uncertainty kind of impacts the demand for mortgages. I think bank buying was fairly light in the first quarter. And I think the increased uncertainty will likely mean that that gets delayed a little that bank demand gets delayed into the second half of the year. You know, in the midst of of higher supply coming due to due to housing. Certainly, the increased trade policy uncertainty could lead to overseas demand being relatively quiet as well in the near term. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:18:06So we just thought, you know, that mix with monetary policy uncertainty just led us to to wanna reduce leverage modestly closer to the lower end of our range. Now I think, you know, as, you know, as mortgages were underperforming in in early April, you know, leverage was, certainly kicking higher given the decline in book value. And, you know, at at a certain point, we we do let it, we do let it drift. But at a certain point, you know, it gets kinda to the high end of the range, and and that's when we decided to take action, to to reduce. And and, you know, it's not, you know, it's not something that we're doing all at once. But, you know, over the course of the month, we decided that we wanted to have leverage a little bit lower than where we started the quarter. Douglas HarterEquity Research Analyst at UBS Group00:18:55Great. I appreciate it. And can you just talk about where you see returns on an incremental basis today? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:19:04Yes. Spreads are very attractive, particularly versus swaps given tightening and swap spreads still quarter to date. So levered ROEs are kind of in the low 20s on higher coupons. Douglas HarterEquity Research Analyst at UBS Group00:19:21Great. Appreciate it. Thank you. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:19:23Thank Operator00:19:25you. Our next question is from Trevor Cranston with Citizens JMP. Your line is open. Trevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMP00:19:32Hey, thanks. And thank you for the portfolio update on April 30. '1 question related to that. Can you comment on any changes to the hedge portfolio that were made in April along with the portfolio reduction? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:19:52Yeah. Hey, Trevor. It's it's Brian again. Yeah. We did, you know, we did increase our our, hedge ratio, you know, just given, you know, again, kinda uncertainty about near term monetary policy, we decided to be be a little bit closer to home, as far as the hedge ratio goes. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:20:11Now as far as the mix between, swaps and treasuries, I think that's still, you know, within the the range that we've kind of been stating over the last couple of quarters, kind of in that 20% to 30%, range of of treasury futures, relative to swaps. So there hasn't been a a notable shift away from that. Trevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMP00:20:31Okay. Got it. And then with the smaller portfolio size as of the April, does that have any impact on how you guys think about sort of the right dividend level for the company? Or does the relatively, you know, wider spreads and and somewhat positive intermediate term outlook sort of outweigh the the reduction in the size of the portfolio? Thanks. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:20:57Yes. Hey, Trevor, it's John. Yes. As far as the dividend goes, mean, we just reduced it in last quarter, so still comfortably covering it. So that's good. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:21:11And I think to Brian's point about ROEs, I mean, you know, what we're seeing off the portfolio and what we're reinvesting are are supportive also. Yeah, I don't have it. We don't have any, concerns about that, at least, you know, given where we are now, for sure. Operator00:21:30Our next question now is from Jason Weaver with Jones Trading. Jason WeaverManaging Director - Equity Research at Jones Trading00:21:41Hey. Good morning, guys. Thanks for taking my question. First, I wonder if can you discuss how you see the opportunity set in agency today compared to the prior peak and spreads in October of last year? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:21:55Yeah. Hey, Jason. It's Brian. Yeah. You know, I think, you know, spreads are, you know, pretty consistent with previous widening episodes. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:22:07So certainly, the the, environment, or at least I'm sorry. The opportunity is is attractive in mortgages. I do think that, you know, the reason that we feel a little less comfortable from a leverage perspective is that, you know, with, the potential, you know, reinvigoration of of inflation, that, you know, it could, cause further delays in monetary policy adjustment, which, you know, right now, the market is pricing in. I think it's, you know, close to three. I know it it just shifted, a little bit yesterday after after the Fed, meeting. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:22:46But, three cuts in in 2025, you know, we do think that, you know, there's a risk that there's fewer than that, and and mortgages, may not respond, you know, all that well to to a shift into into zero cuts or potentially even pricing and and hikes. So, we do think that being a little bit more conservative relative to where we were maybe last fall when the prospect of hikes were or of zero cuts was much less. Jason WeaverManaging Director - Equity Research at Jones Trading00:23:21Got it. That's good color. And just a follow-up. I see that you've been for three quarters now, been reallocating your spec pool exposure away from the low loan balance and into more credit constrained. Can you talk about how you see the relative value there? Jason WeaverManaging Director - Equity Research at Jones Trading00:23:36Is it just a function of pricing? Is there some other risk to loan balance pools that you're seeing? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:23:42Yes. It's a couple of different things, Jason. It's you know, first of all, yes. I mean, loan balance pools, are certainly kind of the premier spec pool story out there. So, you know, because of that, they they tend to be pretty fully priced. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:23:59Now you do get, you know, prepayment certainty out of that, so there is a benefit to to paying up for that. But, you know, with, like I said, you know, with increased economic uncertainty and potential slowdown, we do think that, you know, kind of those lower FICO pool borrowers, we could see increased demand for that, and potentially, you know, slower housing, HPA as well. So, you know, LTV stories, also kind of makes sense from that perspective. But kind of the second portion of that is, you know, it's generally, you know, our rotation from lower coupons into higher coupons. So most of our lower coupon holdings were in were in loan balance, as opposed to, you know, as we're rotating into higher coupons, we want to have a little bit less, spec pool pay up exposure. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:24:53So it's partly just maintaining a little bit lower profile from a pay up perspective. Jason WeaverManaging Director - Equity Research at Jones Trading00:25:01Got it. That's actually very helpful. Thanks for the time guys. Operator00:25:08Our next question now is from Jason Stewart with Janney. Your line is open. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:25:13Hey, thanks. Good morning. I wanted to follow-up on your comments about the forward rate outlook. Are you in the camp where it's sort of either six or seven cuts if we have a recession, no cuts if we don't? Maybe like if you could give us some comments on how you're thinking about that, in relation to how you develop the hedge portfolio, that'd be helpful. Thanks. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:25:35Hey, Jason. It's Yeah. Thanks. Yeah. You know, I think listening to to chair Powell yesterday, the takeaway was just greater uncertainty about about, policy going forward. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:25:52You know, it's kind of a a wait and see approach. Whether, you know, we still see strength in in hard data, while soft data is is certainly pretty weak. So it's just a matter of, you know, the timing on on when those two converge and how they converge. So I think, you know, like I said, there's there's about three cuts being priced in, for 2025. You know, we see a fair amount of economists out there saying zero cuts and and, you know, a fair amount saying that they're gonna have to be pretty aggressive. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:26:25So I think in that environment, our goal is to just be conservative and keep things close to home both from a a hedge notional ratio perspective as well as leverage because, you know, if if things were to swing in either direction, you know, I could, you could be offset. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:26:47Okay. That's fair enough. So no strong view either way on which way we're headed? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:26:52No. We don't we don't like to take interest rate risk in the reach. So, you know, we we try to keep duration gap, pretty close to zero. You know, we may be leaning slightly towards a steeper curve, but, not a not a significant thing there. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:27:08Okay. Got it. That's helpful. And then in terms of ATM activity, I'm coming up with about $8.55 a share on issuance. Could you give us a sense for, you know, your estimate on the impact of book value in one q from ATM issuance and where you're comfortable issuing going forward? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:27:29Yeah. You know, I think, you know, I think given where spreads are, we feel like the investment, environment is attractive enough. You know, I think that's probably about right from a from a share price perspective. So, you know, the the the impact would have been pretty modest. But, again, you know, given where we're able to put money to work, we think, overall, it's it's certainly improving the economics of the of the REIT and and to shareholders. And and, you know, and also, you know, issuing, through the ATM helps us reduce, expenses. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:28:11Okay. Thanks. Appreciate the color and taking the questions. Operator00:28:17Thank you. Presently, my last question now is from Eric Hagen with BTIG. And your line is open. Eric HagenManaging Director at BTIG00:28:28Hey, thanks. Good morning. Good discussion here around the Fed. I guess I have one follow-up. Like our mental framework has typically been for mortgage spreads to tighten if the Fed cuts interest rates. Eric HagenManaging Director at BTIG00:28:39I feel like that's probably still the case. But do you think that's different or has the potential to be different in this environment because of the macro and its impact on you know, just the flow of capital and should we should we should we necessarily take a fed cut as being a catalyst for spreads to tighten? Or or how do you think about that? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:29:02Yeah. Hey, Eric. Thanks. It's Brian. Yeah. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:29:04And, hope the hope the conference is going well. Sorry. We couldn't we couldn't be there. But, yeah, I think that, you know, generally speaking, that's correct. You know, a slowing economy, should lead to a steeper curve, which helps agency mortgage valuations. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:29:24I also think, you know, in the near term here, you know, a Fed on hold isn't necessarily a tear a bad thing for mortgages. You know, it does reduce, short term volatility, so mortgages could could do okay here with, with the Fed kind of taking a wait and see approach. But, no, I think, you know, a slowing economy does it certainly helps mortgages versus other credit assets. And and versus treasuries, think they hold in, just fine. And then, you know, our employees to do pretty well as kind of, you know, as other asset classes kind of start to catch up as as the economy maybe, comes off of the the slowdown and and starts improving again. Eric HagenManaging Director at BTIG00:30:08Right. Right. Alright. Thanks for the color. Are you guys seeing any opportunities in commercial credit and, maybe, you know, picking up some more share there and how you guys think about relative value versus, RMBS right now? Thank you, guys. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:30:24Yes. I mean, we've been we've been relatively hesitant to to add credit exposure in this environment. You know, I think, certainly, you know, we are not interested in in, you know, financing versus, with mark to market financing. So we we haven't been looking to to add. We've actually, have sold, our remaining credit investments, that were, you know, pretty modest coming into the year, but, we're we're completely out of those and found, you know, fairly decent levels, to get out of those. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:30:58So, you know, we're we're 100 agency at this point, and we don't anticipate that that changing in the near term. Trevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMP00:31:05Got you. Thank you, guys. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:31:08Thanks, Eric. Operator00:31:09Thank you, Ed. Thank you both. As I have no further questions in queue, I would like to turn it back to management for any closing remarks. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:31:17No. We just like to thank everyone for joining us this morning, and we look forward to getting together again next quarter. Thanks. Operator00:31:27We are now concluded. Thank you again for your participation. Please disconnect at this time.Read moreParticipantsExecutivesGreg SealsHead, Investor RelationsJohn AnzaloneChief Executive OfficerBrian NorrisChief Investment OfficerAnalystsDouglas HarterEquity Research Analyst at UBS GroupTrevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMPJason WeaverManaging Director - Equity Research at Jones TradingJason StewartDirector - Mortgage Finance at Janney Montgomery ScottEric HagenManaging Director at BTIGPowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Invesco Mortgage Capital Earnings HeadlinesInvesco Mortgage Enters New Equity Distribution AgreementAugust 8 at 6:13 PM | tipranks.comInvesco Mortgage Capital’s Mixed Earnings Call InsightsJuly 28, 2025 | tipranks.comTrump’s national nightmare is herePorter Stansberry and Jeff Brown say a new U.S. national emergency is already underway — and it could trigger the biggest forced rotation of capital since World War II. They reveal why Trump is mobilizing America’s tech giants… and name the two stocks most likely to soar as trillions shift behind the scenes. | Porter & Company (Ad)Invesco Mortgage Capital Inc (IVR) Q2 2025 Earnings Call Highlights: Navigating Market ...July 26, 2025 | gurufocus.comQ2 2025 Invesco Mortgage Capital Inc Earnings Call TranscriptJuly 25, 2025 | gurufocus.comInvesco Mortgage Capital Reports Q2 2025 LossJuly 25, 2025 | tipranks.comSee More Invesco Mortgage Capital Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Invesco Mortgage Capital? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Invesco Mortgage Capital and other key companies, straight to your email. Email Address About Invesco Mortgage CapitalInvesco Mortgage Capital (NYSE:IVR). operates as a real estate investment trust (REIT) that invests, finances, and manages mortgage-backed securities and other mortgage-related assets in the United States. It invests in residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) that are guaranteed by a U.S. government agency or federally chartered corporation; RMBS and CMBS that are not issued or guaranteed by the United States government agency or federally chartered corporation; the United States treasury securities; real estate-related financing arrangements; to-be-announced securities forward contracts to purchase RMBS; and commercial mortgage loans. It has elected to be taxed as a REIT and would be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. 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PresentationSkip to Participants Operator00:00:00Welcome to the Invesco Mortgage Capital First Quarter twenty twenty five Earnings Call. All participants will be in a listen only mode until the question and answer session. As a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin the call. Greg SealsHead, Investor Relations at Invesco Mortgage Capital00:00:27Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. Press release and presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward looking statements and certain non GAAP financial measures. Greg SealsHead, Investor Relations at Invesco Mortgage Capital00:00:54Please review the disclosures on Slide two of the presentation regarding the statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our teleconference transcripts provided by third parties. The only authorized webcast are located on our website. Again, welcome. Thank you for joining us today. Greg SealsHead, Investor Relations at Invesco Mortgage Capital00:01:19I'll now turn the call over to Invesco Mortgage Capital's CEO, John Ansplung. John? John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:01:25Good morning, and welcome to Invesco Mortgage Capital's first quarter earnings call. I'll provide some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q and A is our President, Kevin Collins our COO, Dave Lyle and our CFO, Mark Gregson. The first quarter of twenty twenty five is characterized by tightening financial conditions as both equity markets and credit spreads reacted negatively to anticipated U. S. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:01:56Fiscal and trade policies. Although inflation measures stabilized during the quarter, investors increased expectations for future inflation given concerns about the potential impact of U. S. Trade related policies. As inflation forecasts were increasing, softer employment data and fears the combination of potential trade wars and fiscal austerity would contribute to an economic slowdown led to a repricing of the market's expectations of future monetary policy. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:02:25The Fed funds futures market as of quarter end reflected a further 75 basis point reduction of the target rate through the end of the year. Interest rates dropped across the maturity spectrum during the quarter, while short dated interest rate volatility increased, reflecting the market shifting expectations of monetary and trade policy, while longer dated volatility declined modestly. Despite weaker market sentiment, agency mortgages performance was largely consistent with treasuries, with higher coupons modestly outperforming hedges as longer dated interest rate volatility trended lower. Supply and demand technicals for higher coupon agency mortgages were supportive as originations remained subdued given slower housing seasonals and elevated mortgage rates, while banks, money managers and mortgage REITs net added exposure during the quarter. Prepayment speeds remained at low levels given limited purchase and refinancing activity. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:03:22However, a notable decline in mortgage rates in the latter half of the quarter should result in faster prepayment speeds in the coming months as the decline coincided with the seasonal increase in housing activity. Premiums on specified pool collateral were largely unchanged during the quarter as the move lower in mortgage rates led to support for prepayment protection. Additionally, Agency CMBS risk premiums increased during the quarter, reflecting weakness in broader fixed income markets. In this environment, our portfolio produced a positive economic return for the quarter of 2.6%, consisting of our $0.34 dividend and a modest $0.11 decline in book value to $8.81 Following additional trade policy announcements on April 2, financial conditions tightened further and investor inflation expectations declined as concerns about an economic slowdown outweighed concerns about potentially higher prices. Agency mortgages significantly underperformed treasuries as the initial reaction to the announcement saw interest rate volatility spike sharply higher and risk assets sell off across both fixed income and equities as markets priced in potentially slower economic growth. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:04:41Further, hedge funds were selling U. S. Treasuries and receiving swaps due to an unwind of a previous trade where they purchased treasuries and hedged them with swaps. This caused swap spreads to move sharply tighter, negatively impacting book value. Given this challenging environment, our book value per common share declined in April, and our estimate for April 30 is between $7.74 and $8.06 Given elevated interest rate volatility and continued policy uncertainty, we remain cautious on agency mortgages in the near term. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:05:16However, our long term outlook is favorable as we expect investor demand to improve in higher coupons given attractive valuations and eventual decline in interest rate volatility and the steeper yield curve. Lastly, while Agency CMBS risk premiums may remain elevated, limited issuance, strong fundamental performance and stable cash flow profile should provide favorable support for the sector. Now I'll turn the call over to Brian to provide more details. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:05:43Thanks, John, and good morning to everyone listening to the call. I'll begin on Slide four, which provides an overview of the interest rate and agency mortgage markets over the past year. As shown on the chart in the upper left, during the first quarter, U. S. Treasury yields declined 20 to 40 basis points across the yield curve with yields on shorter maturities falling more than longer maturities. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:06:03The decline was driven largely by concerns over the economic growth prospects in The U. S. As fiscal and trade policy was rapidly adjusting under the new administration. The yield curve continued to steepen in April as U. S. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:06:16Economic growth expectations diminished further amidst growing trade policy uncertainty following Liberation Day on April 2. As depicted on the chart on the bottom left, the Fed funds futures market is now pricing in deeper cuts over the next two years with the target rate expected to be reduced three to four times in 2025 and bottoming near 3% in 2026. As a result, futures markets are now pricing in a greater number of interest rate cuts than previously expected. At the start of the year, only one or two cuts were anticipated in 2025, with the target rate declining to just 3.75% in 2026. The chart in the upper right reflects changes in short term funding rates over the past year. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:07:02Positively, the funding market for our assets has been stable since year end, with haircuts unchanged and one month repo spreads remaining between SOFR plus 15 to 18 basis points. Lastly, the bottom right chart details Agency MBS holdings by the Federal Reserve and U. S. Banks. As announced by the FOMC at their March meeting, runoff of the Fed's balance sheet continues but at a reduced pace starting in April, with runoff of the treasury portfolio declining from $25,000,000,000 to $5,000,000,000 per month and the agency mortgage runoff cap remaining unchanged at $35,000,000,000 per month. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:07:41Agency mortgage runoff has been averaging approximately $15,000,000,000 per month in recent months. So the reduction in treasury runoff essentially reduces the overall monthly decline of the balance sheet from 40,000,000,000 to 20,000,000,000 Given the reduced pace, quantitative tightening is now expected to conclude in 2026 instead of 2025. U. S. Banks added marginally to their portfolios in the first quarter, but we expect demand for Agency RMBS to increase notably in the second half of the year as deregulation, a slowing economy and a steeper yield curve provides an attractive environment for deployment of deposits. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:08:19Slide five provides more detail on the Agency mortgage market. In the upper left chart, we show thirty year current coupon performance versus U. S. Treasuries over the past year, highlighting the first quarter in gray. Although lower coupons underperformed, higher coupons modestly outperformed during the quarter given a favorable supply and demand environment as well as a trend lower in long term interest rate volatility. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:08:42The sector underperformed significantly in the April, however, as interest rate volatility spiked higher after Liberation Day. This increase in interest rate volatility reduced investor demand for agency mortgages and the sharp underperformance in risk assets led to a substantial amount of selling in the sector as money managers sold agency mortgage pools for short settle to fund redemptions and rotate into other sectors. The impact of these sales can be seen in the chart on the upper right, which shows specified pool pay ups over the past year. Specified pool pay ups declined notably in early April as the need for cash settle led to substantial selling in pools. Lastly, as shown in the lower right chart, funding via the dollar roll market for TBA securities has been attractive in the conventional 6.5% coupon, but largely unattractive elsewhere. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:09:34Our rotation in the 6.5% coupons during the first quarter capitalized on the attractiveness of the roll before rotating into specified pools in March. While we continue to prefer specified pools over TBA given their more predictable prepayment behavior, we will continue to take advantage of attractive alternatives in the dollar roll market as they become available. Slide six details our agency mortgage investments and summarizes investment portfolio changes during the quarter. Our agency RMBS portfolio increased 9.5% quarter over quarter as we invested proceeds from ATM issuance into thirty year five percent through 6.5% coupons. In addition, we rotated our remaining allocations from the 4% coupon into higher coupons as the relative value between coupons in the middle of the coupon stack and higher coupons became stretched. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:10:28Overall, we remain focused in higher coupon Agency RMBS, which should see greater benefit from a decline in interest rate volatility and demand from banks, overseas investors and mortgage REITs. We continue to focus our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments with our largest concentration and lower loan balance collateral given more predictable prepayments. We increased our allocation to specified pools consisting of loans with low credit score borrowers during the quarter as the potential slowdown in economic activity should lead to slower prepayments from credit constrained borrowers. Although we anticipate interest rate volatility to remain elevated and are cautious on the sector overall in the near term, we believe levered gross ROEs in the low 20% represent a very attractive entry point for investors with longer investment horizons. Slide seven provides detail on our Agency CMBS portfolio. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:11:30We purchased just $52,000,000 at the beginning of the first quarter as our exposure to the sector remained at approximately 15% of our total investment portfolio. We believe Agency CMBS offers many benefits, mainly through its prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Leveraged gross ROEs on our new purchases were in the low double digits, and we have been disciplined on adding exposure only when the relative value between Agency CMBS and Agency RMBS accurately reflects their different risks. Financing capacity has been robust as we have been able to finance our purchases with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation as they become available, recognizing the overall benefits to the portfolio as the sector diversifies risks associated with an Agency RMBS portfolio. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:12:24Slide eight details our funding and hedging book at quarter end. Repurchase agreements have collateralized by our Agency RMBS and Agency CMBS investments increased from $4,900,000,000 to $5,400,000,000 consistent with the increase in our total assets, while the total notional of our hedges declined from 4,700,000,000 to $4,500,000,000 The increase in our repo balance and decrease in hedge notional resulted in a lower hedge ratio for the quarter from 95% to 85%, reflecting our expectation of a slowing economy and more substantial cuts in the Fed funds target rate in 2025. The table on the right provides further detail on our hedges at year end. The composition of our hedge portfolio shifted modestly towards interest rate swaps during the quarter. On a notional basis, our allocation to swaps increased from 70% at year end to 80% at the March, while on a dollar duration basis, the allocation shifted from roughly 50% to 70%. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:13:28Slide nine provides an update on the portfolio as of April 30. As previously discussed, the Liberation Day tariff announcements resulted in substantial market volatility in early April as risk assets underperformed sharply and interest rate volatility spiked higher. Agency mortgages notably underperformed treasuries during this time as money managers liquidated positions to fund redemptions and asset rotations. In addition, swap spreads tightened significantly as hedge funds were forced to unwind carry trades amidst increased volatility, further negatively impacting our book value. We sought to reduce risk and maintain ample liquidity by selling assets to bring our leverage ratio back down to the mid-6s from 7.1x debt to equity at the March. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:14:14Sales were focused on higher coupons for a few reasons, most notably given their elevated exposure to interest rate volatility and also increased prepayment risk given our expectation for an eventual softening in economic growth and lower interest rates. Slide 10 provides more detail on our capital structure and highlights the improvement made in recent quarters to reduce our cost of capital. Further improvement in the capital structure remains a focus of ours as we seek to maximize shareholder returns. To conclude our prepared remarks, financial market volatility began to increase in the latter half of the first quarter as investors began to incorporate greater monetary and fiscal policy uncertainty into valuations. But our focus in higher coupon Agency RMBS and increased allocation to Agency CMBS mitigated much of this impact and resulted in a positive economic return of 2.6%. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:15:09Although increased volatility, swap spread tightening and the agency mortgage underperformance negatively impacted our book value in April, positively financial markets have stabilized as the proposed tariffs have been postponed and negotiations began with book value up approximately 1% so far in May. We believe IVR is well positioned to navigate current mortgage market volatility given our recent reduction in leverage. We believe our liquidity position will provide substantial cushion for further potential market stress while also providing capital to deploy into our target assets as the investment environment improves. While near term uncertainty warrants a cautious a somewhat cautious approach, we believe further easing of monetary policy will lead to a steeper yield curve and an eventual decline in interest rate volatility, both of which provide a supportive backdrop for agency mortgages over the long term as they improve demand from commercial banks, overseas investors, money managers and REITs. Thank you for your continued support for Invesco Mortgage Capital. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:16:15And now we will open the line for Q and A. Operator00:16:18Thank you, gentlemen. And our first question is from Doug Harter with UBS. Your line is now open. Douglas HarterEquity Research Analyst at UBS Group00:16:46Thanks. Appreciate the update on April. Can you just talk through the decision to take down leverage and kind of how you think about managing volatile periods as to whether you let kind of leverage float or you take portfolio actions like you did? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:17:09Hey, Doug. Thanks. It's Brian. Yes. So in April, we essentially took leverage down about 0.5 turn from where it began a month. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:17:19And that just really reflects increased uncertainty regarding monetary, fiscal, and trade policy and how those that uncertainty kind of impacts the demand for mortgages. I think bank buying was fairly light in the first quarter. And I think the increased uncertainty will likely mean that that gets delayed a little that bank demand gets delayed into the second half of the year. You know, in the midst of of higher supply coming due to due to housing. Certainly, the increased trade policy uncertainty could lead to overseas demand being relatively quiet as well in the near term. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:18:06So we just thought, you know, that mix with monetary policy uncertainty just led us to to wanna reduce leverage modestly closer to the lower end of our range. Now I think, you know, as, you know, as mortgages were underperforming in in early April, you know, leverage was, certainly kicking higher given the decline in book value. And, you know, at at a certain point, we we do let it, we do let it drift. But at a certain point, you know, it gets kinda to the high end of the range, and and that's when we decided to take action, to to reduce. And and, you know, it's not, you know, it's not something that we're doing all at once. But, you know, over the course of the month, we decided that we wanted to have leverage a little bit lower than where we started the quarter. Douglas HarterEquity Research Analyst at UBS Group00:18:55Great. I appreciate it. And can you just talk about where you see returns on an incremental basis today? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:19:04Yes. Spreads are very attractive, particularly versus swaps given tightening and swap spreads still quarter to date. So levered ROEs are kind of in the low 20s on higher coupons. Douglas HarterEquity Research Analyst at UBS Group00:19:21Great. Appreciate it. Thank you. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:19:23Thank Operator00:19:25you. Our next question is from Trevor Cranston with Citizens JMP. Your line is open. Trevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMP00:19:32Hey, thanks. And thank you for the portfolio update on April 30. '1 question related to that. Can you comment on any changes to the hedge portfolio that were made in April along with the portfolio reduction? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:19:52Yeah. Hey, Trevor. It's it's Brian again. Yeah. We did, you know, we did increase our our, hedge ratio, you know, just given, you know, again, kinda uncertainty about near term monetary policy, we decided to be be a little bit closer to home, as far as the hedge ratio goes. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:20:11Now as far as the mix between, swaps and treasuries, I think that's still, you know, within the the range that we've kind of been stating over the last couple of quarters, kind of in that 20% to 30%, range of of treasury futures, relative to swaps. So there hasn't been a a notable shift away from that. Trevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMP00:20:31Okay. Got it. And then with the smaller portfolio size as of the April, does that have any impact on how you guys think about sort of the right dividend level for the company? Or does the relatively, you know, wider spreads and and somewhat positive intermediate term outlook sort of outweigh the the reduction in the size of the portfolio? Thanks. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:20:57Yes. Hey, Trevor, it's John. Yes. As far as the dividend goes, mean, we just reduced it in last quarter, so still comfortably covering it. So that's good. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:21:11And I think to Brian's point about ROEs, I mean, you know, what we're seeing off the portfolio and what we're reinvesting are are supportive also. Yeah, I don't have it. We don't have any, concerns about that, at least, you know, given where we are now, for sure. Operator00:21:30Our next question now is from Jason Weaver with Jones Trading. Jason WeaverManaging Director - Equity Research at Jones Trading00:21:41Hey. Good morning, guys. Thanks for taking my question. First, I wonder if can you discuss how you see the opportunity set in agency today compared to the prior peak and spreads in October of last year? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:21:55Yeah. Hey, Jason. It's Brian. Yeah. You know, I think, you know, spreads are, you know, pretty consistent with previous widening episodes. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:22:07So certainly, the the, environment, or at least I'm sorry. The opportunity is is attractive in mortgages. I do think that, you know, the reason that we feel a little less comfortable from a leverage perspective is that, you know, with, the potential, you know, reinvigoration of of inflation, that, you know, it could, cause further delays in monetary policy adjustment, which, you know, right now, the market is pricing in. I think it's, you know, close to three. I know it it just shifted, a little bit yesterday after after the Fed, meeting. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:22:46But, three cuts in in 2025, you know, we do think that, you know, there's a risk that there's fewer than that, and and mortgages, may not respond, you know, all that well to to a shift into into zero cuts or potentially even pricing and and hikes. So, we do think that being a little bit more conservative relative to where we were maybe last fall when the prospect of hikes were or of zero cuts was much less. Jason WeaverManaging Director - Equity Research at Jones Trading00:23:21Got it. That's good color. And just a follow-up. I see that you've been for three quarters now, been reallocating your spec pool exposure away from the low loan balance and into more credit constrained. Can you talk about how you see the relative value there? Jason WeaverManaging Director - Equity Research at Jones Trading00:23:36Is it just a function of pricing? Is there some other risk to loan balance pools that you're seeing? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:23:42Yes. It's a couple of different things, Jason. It's you know, first of all, yes. I mean, loan balance pools, are certainly kind of the premier spec pool story out there. So, you know, because of that, they they tend to be pretty fully priced. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:23:59Now you do get, you know, prepayment certainty out of that, so there is a benefit to to paying up for that. But, you know, with, like I said, you know, with increased economic uncertainty and potential slowdown, we do think that, you know, kind of those lower FICO pool borrowers, we could see increased demand for that, and potentially, you know, slower housing, HPA as well. So, you know, LTV stories, also kind of makes sense from that perspective. But kind of the second portion of that is, you know, it's generally, you know, our rotation from lower coupons into higher coupons. So most of our lower coupon holdings were in were in loan balance, as opposed to, you know, as we're rotating into higher coupons, we want to have a little bit less, spec pool pay up exposure. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:24:53So it's partly just maintaining a little bit lower profile from a pay up perspective. Jason WeaverManaging Director - Equity Research at Jones Trading00:25:01Got it. That's actually very helpful. Thanks for the time guys. Operator00:25:08Our next question now is from Jason Stewart with Janney. Your line is open. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:25:13Hey, thanks. Good morning. I wanted to follow-up on your comments about the forward rate outlook. Are you in the camp where it's sort of either six or seven cuts if we have a recession, no cuts if we don't? Maybe like if you could give us some comments on how you're thinking about that, in relation to how you develop the hedge portfolio, that'd be helpful. Thanks. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:25:35Hey, Jason. It's Yeah. Thanks. Yeah. You know, I think listening to to chair Powell yesterday, the takeaway was just greater uncertainty about about, policy going forward. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:25:52You know, it's kind of a a wait and see approach. Whether, you know, we still see strength in in hard data, while soft data is is certainly pretty weak. So it's just a matter of, you know, the timing on on when those two converge and how they converge. So I think, you know, like I said, there's there's about three cuts being priced in, for 2025. You know, we see a fair amount of economists out there saying zero cuts and and, you know, a fair amount saying that they're gonna have to be pretty aggressive. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:26:25So I think in that environment, our goal is to just be conservative and keep things close to home both from a a hedge notional ratio perspective as well as leverage because, you know, if if things were to swing in either direction, you know, I could, you could be offset. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:26:47Okay. That's fair enough. So no strong view either way on which way we're headed? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:26:52No. We don't we don't like to take interest rate risk in the reach. So, you know, we we try to keep duration gap, pretty close to zero. You know, we may be leaning slightly towards a steeper curve, but, not a not a significant thing there. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:27:08Okay. Got it. That's helpful. And then in terms of ATM activity, I'm coming up with about $8.55 a share on issuance. Could you give us a sense for, you know, your estimate on the impact of book value in one q from ATM issuance and where you're comfortable issuing going forward? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:27:29Yeah. You know, I think, you know, I think given where spreads are, we feel like the investment, environment is attractive enough. You know, I think that's probably about right from a from a share price perspective. So, you know, the the the impact would have been pretty modest. But, again, you know, given where we're able to put money to work, we think, overall, it's it's certainly improving the economics of the of the REIT and and to shareholders. And and, you know, and also, you know, issuing, through the ATM helps us reduce, expenses. Jason StewartDirector - Mortgage Finance at Janney Montgomery Scott00:28:11Okay. Thanks. Appreciate the color and taking the questions. Operator00:28:17Thank you. Presently, my last question now is from Eric Hagen with BTIG. And your line is open. Eric HagenManaging Director at BTIG00:28:28Hey, thanks. Good morning. Good discussion here around the Fed. I guess I have one follow-up. Like our mental framework has typically been for mortgage spreads to tighten if the Fed cuts interest rates. Eric HagenManaging Director at BTIG00:28:39I feel like that's probably still the case. But do you think that's different or has the potential to be different in this environment because of the macro and its impact on you know, just the flow of capital and should we should we should we necessarily take a fed cut as being a catalyst for spreads to tighten? Or or how do you think about that? Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:29:02Yeah. Hey, Eric. Thanks. It's Brian. Yeah. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:29:04And, hope the hope the conference is going well. Sorry. We couldn't we couldn't be there. But, yeah, I think that, you know, generally speaking, that's correct. You know, a slowing economy, should lead to a steeper curve, which helps agency mortgage valuations. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:29:24I also think, you know, in the near term here, you know, a Fed on hold isn't necessarily a tear a bad thing for mortgages. You know, it does reduce, short term volatility, so mortgages could could do okay here with, with the Fed kind of taking a wait and see approach. But, no, I think, you know, a slowing economy does it certainly helps mortgages versus other credit assets. And and versus treasuries, think they hold in, just fine. And then, you know, our employees to do pretty well as kind of, you know, as other asset classes kind of start to catch up as as the economy maybe, comes off of the the slowdown and and starts improving again. Eric HagenManaging Director at BTIG00:30:08Right. Right. Alright. Thanks for the color. Are you guys seeing any opportunities in commercial credit and, maybe, you know, picking up some more share there and how you guys think about relative value versus, RMBS right now? Thank you, guys. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:30:24Yes. I mean, we've been we've been relatively hesitant to to add credit exposure in this environment. You know, I think, certainly, you know, we are not interested in in, you know, financing versus, with mark to market financing. So we we haven't been looking to to add. We've actually, have sold, our remaining credit investments, that were, you know, pretty modest coming into the year, but, we're we're completely out of those and found, you know, fairly decent levels, to get out of those. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:30:58So, you know, we're we're 100 agency at this point, and we don't anticipate that that changing in the near term. Trevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMP00:31:05Got you. Thank you, guys. Brian NorrisChief Investment Officer at Invesco Mortgage Capital00:31:08Thanks, Eric. Operator00:31:09Thank you, Ed. Thank you both. As I have no further questions in queue, I would like to turn it back to management for any closing remarks. John AnzaloneChief Executive Officer at Invesco Mortgage Capital00:31:17No. We just like to thank everyone for joining us this morning, and we look forward to getting together again next quarter. Thanks. Operator00:31:27We are now concluded. Thank you again for your participation. Please disconnect at this time.Read moreParticipantsExecutivesGreg SealsHead, Investor RelationsJohn AnzaloneChief Executive OfficerBrian NorrisChief Investment OfficerAnalystsDouglas HarterEquity Research Analyst at UBS GroupTrevor CranstonDirector, Mortgage Finance Equity Research at Citizens JMPJason WeaverManaging Director - Equity Research at Jones TradingJason StewartDirector - Mortgage Finance at Janney Montgomery ScottEric HagenManaging Director at BTIGPowered by