Invesco Mortgage Capital Q1 2025 Earnings Report

Invesco Mortgage Capital EPS Results

• Actual EPS: $0.64
• Consensus EPS: $0.56
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: N/A

Invesco Mortgage Capital Revenue Results

• Actual Revenue: $18.82 million
• Expected Revenue: $44.71 million
• Beat/Miss: Missed by -$25.89 million
• YoY Revenue Growth: N/A

Invesco Mortgage Capital Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 9:00AM ET

 

Invesco Mortgage Capital (NYSE:IVR) is a mortgage-focused REIT externally managed by Invesco Advisors Ltd. Invesco Advisors LTD is a subsidiary of Invesco which is a leading wealth manager and investment company for individuals, high net-worth clients, institutions, public entities, corporations, and governments. The firm created Invesco Mortgage Capital, Inc to focus its decades of experience in the mortgage markets to generate a steady stream of cash for its investors.

The company was incorporated in 2008 in order to acquire, finance, and manage a portfolio of mortgage-backed securities and mortgages. Invesco believes that achieving the full potential of the mortgage market requires a blend of discipline, structure, and creativity because of long-term structural changes in the way real estate transactions and ownership are handled. The units of Invesco Mortgage Capital tend to yield high-double-digits and have paid more than $26 per unit on a split-adjusted basis since the dividend was initiated.

The objective is to provide risk-adjusted returns through dividends and capital appreciation using the combined strengths of three key Invesco groups; the in-house real estate team, the Worldwide Fixed Income team, and subsidiary WL Ross & Co. Invesco Mortgage Capital is headquartered in Atlanta, Georgia. As of Q3 2022, Invesco Mortgage Capital Inc held $4.9 billion in assets, $4.7 billion of which were listed as agency RMBS.

Invesco Mortgage Capital Inc. elected to be taxed as a REIT and so distributes at least 90% of its income to shareholders each year. The fund seeks to generate a high level of income while maintaining a stable portfolio and book value within a dynamic market. The investment strategy is opportunistic and not limited to a single type of mortgage security and so provides greater diversification than most other REITs as well.

Invesco invests in a blend of residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) that are and are not guaranteed by a U.S. government agency or federally chartered corporation. The fund also invests in credit risk transfer securities, residential and commercial mortgage loans, and assorted real estate-related financing. Among the opportunities, the fund is pursuing are commercial real estate loan origination, securitizing residential mortgages, and risk-sharing arrangements with federal housing authorities.

Invesco Mortgage Capital Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1 2025, the portfolio delivered a 2.6% economic return comprising a $0.34 dividend and a modest $0.11 book value decline to $8.81, though April book value dipped further to an estimated $7.74–$8.06 amid market volatility.
• Financial conditions tightened as equity markets and credit spreads reacted to U.S. fiscal and trade policy uncertainty, driving interest rates lower, raising short-term rate volatility, and leading Fed futures to price in about 75 bps of rate cuts by year-end.
• The firm increased allocations to higher-coupon Agency RMBS (5%–6.5%), rotated into specified pools with lower-FICO borrowers, and maintained Agency CMBS exposure near 15%, aiming to capture attractive valuations and more predictable prepayment profiles.
• Leverage was reduced from 7.1× to the mid-6× range and the hedge ratio lowered from 95% to 85%—with a greater emphasis on interest rate swaps—reflecting a cautious near-term stance on policy uncertainty and volatility.
• While near-term sentiment remains cautious, the company expects long-term support from a steeper yield curve, declining volatility, and improved demand for higher-coupon Agency mortgages and CMBS as monetary policy eases and technical fundamentals normalize.

Presentation

[Operator]

Welcome 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.

[Operator]

Seals, you may begin the call.

[Greg Seals, Head, Investor Relations at Invesco Mortgage Capital]

Thanks, 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 Seals, Head, Investor Relations at Invesco Mortgage Capital]

Please 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 Seals, Head, Investor Relations at Invesco Mortgage Capital]

I'll now turn the call over to Invesco Mortgage Capital's CEO, John Ansplung. John?

[John Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

Good 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

Fiscal 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

The 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

However, 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

Further, 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

However, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Thanks, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

The 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Economic 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Positively, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Agency 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Slide 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

The 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Our 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Overall, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

We 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Slide 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Slide 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Sales 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Although 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

And now we will open the line for Q and A.

[Operator]

Thank you, gentlemen. And our first question is from Doug Harter with UBS. Your line is now open.

[Douglas Harter, Equity Research Analyst at UBS Group]

Thanks. 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Hey, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

And 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

So 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.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Now I

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

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 Harter, Equity Research Analyst at UBS Group]

Great. I appreciate it. And can you just talk about where you see returns on an incremental basis today?

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yes. 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 Harter, Equity Research Analyst at UBS Group]

Great. Appreciate it. Thank you.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Thank

[Operator]

you. Our next question is from Trevor Cranston with Citizens JMP. Your line is open.

[Trevor Cranston, Director, Mortgage Finance Equity Research at Citizens JMP]

Hey, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yeah. 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Now 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 Cranston, Director, Mortgage Finance Equity Research at Citizens JMP]

Okay. Got it. And then with the smaller portfolio size

[Trevor Cranston, Director, Mortgage Finance Equity Research at Citizens JMP]

as of

[Trevor Cranston, Director, Mortgage Finance Equity Research at Citizens JMP]

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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

Yes. 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

And 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,

[John Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

given where we are now, for sure.

[Operator]

Our

[Operator]

next question now is from Jason Weaver with Jones Trading.

[Jason Weaver, Managing Director - Equity Research at Jones Trading]

Hey. 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yeah. Hey, Jason. It's Brian. Yeah. You know, I think, you know, spreads are, you know, pretty consistent with previous widening episodes.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

So 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

But, 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 Weaver, Managing Director - Equity Research at Jones Trading]

Got 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 Weaver, Managing Director - Equity Research at Jones Trading]

Is it just a function of pricing? Is there some other risk to loan balance pools that you're seeing?

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yes. 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Now 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

So it's partly just maintaining a little bit lower profile from a pay up perspective.

[Jason Weaver, Managing Director - Equity Research at Jones Trading]

Got it. That's actually very helpful.

[Jason Weaver, Managing Director - Equity Research at Jones Trading]

Thanks for the time guys.

[Operator]

Our next question now is from Jason Stewart with Janney. Your line is open.

[Jason Stewart, Director - Mortgage Finance at Janney Montgomery Scott]

Hey, 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.

[Jason Stewart, Director - Mortgage Finance at Janney Montgomery Scott]

Thanks.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Hey, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

You 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

So 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 Stewart, Director - Mortgage Finance at Janney Montgomery Scott]

Okay. That's fair enough. So no strong view either way on which way we're headed?

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

No. 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 Stewart, Director - Mortgage Finance at Janney Montgomery Scott]

Okay. 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yeah. You know, I think, you know, I think given where spreads are, we feel like the investment, environment is attractive enough. You

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

know, I

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

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 Stewart, Director - Mortgage Finance at Janney Montgomery Scott]

Okay. Thanks. Appreciate the color and taking the questions.

[Operator]

Thank you. Presently, my last question now is from Eric Hagen with BTIG. And your line is open.

[Eric Hagen, Managing Director at BTIG]

Hey, 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 Hagen, Managing Director at BTIG]

I 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yeah. Hey, Eric. Thanks. It's Brian. Yeah.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

And, 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

I 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 Hagen, Managing Director at BTIG]

Right. 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?

[Eric Hagen, Managing Director at BTIG]

Thank you, guys.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Yes. 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 Norris, Chief Investment Officer at Invesco Mortgage Capital]

So, you know, we're we're 100 agency at this point, and we don't anticipate that that changing in the near term.

[Trevor Cranston, Director, Mortgage Finance Equity Research at Citizens JMP]

Got you. Thank you, guys.

[Brian Norris, Chief Investment Officer at Invesco Mortgage Capital]

Thanks, Eric.

[Operator]

Thank 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 Anzalone, Chief Executive Officer at Invesco Mortgage Capital]

No. We just like to thank everyone for joining us this morning, and we look forward to getting together again next quarter. Thanks.

[Operator]

We are now concluded. Thank you again for your participation. Please disconnect at this time.

Participants

Executives

• Greg Seals, Head, Investor Relations
• John Anzalone, Chief Executive Officer
• Brian Norris, Chief Investment Officer

Analysts

• Douglas Harter, Equity Research Analyst at UBS Group
• Trevor Cranston, Director, Mortgage Finance Equity Research at Citizens JMP
• Jason Weaver, Managing Director - Equity Research at Jones Trading
• Jason Stewart, Director - Mortgage Finance at Janney Montgomery Scott
• Eric Hagen, Managing Director at BTIG