Invesco Mortgage Capital Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2026

Key Takeaways

  • Neutral Sentiment: Economic return was 3.8% in the second quarter, supported by $0.12 per-share monthly dividends, while book value per share declined modestly by 0.6%. Earnings available for distribution fell to $0.50 per share from $0.55 in the prior quarter.
  • Positive Sentiment: The investment portfolio grew 12.4% quarter over quarter to $8.2 billion, primarily through purchases of higher-coupon specified pools. Management raised approximately $118 million through its ATM program during the quarter and expects to continue issuing shares opportunistically near book value.
  • Positive Sentiment: Management cited favorable Agency mortgage supply-and-demand dynamics, tighter spreads, attractive carry, and stable funding markets. It remains constructive on Agency RMBS and Agency CMBS, while viewing Agency CMBS as a diversifying asset with predictable cash flows and lower rate sensitivity.
  • Positive Sentiment: Liquidity remained substantial, with approximately $548 million of cash and unencumbered investments, equal to about 55% of equity. The company maintained a high 97% hedge ratio and reduced its duration gap to roughly one-quarter year amid heightened monetary-policy uncertainty.
  • Negative Sentiment: Management expects greater front-end rate volatility and acknowledged that mortgage spreads have widened since quarter-end, with book value estimated to be down roughly 2.5% quarter to date after backing out the accrued dividend. Geopolitical risks, inflation, elevated mortgage rates, and the possibility of a 2026 rate hike remain potential headwinds.
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Earnings Conference Call
Invesco Mortgage Capital Q2 2026
00:00 / 00:00

Transcript Sections

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Operator

Welcome to the Invesco Mortgage Capital second quarter 2026 earnings call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, press the star followed by one on your telephone. As a reminder, this call is being recorded. I would like to turn the call over to Greg Seals in investor relations. Mr. Seals, you may begin the call.

Greg Seals
Greg Seals
Investor Relations at Invesco Mortgage Capital

Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's second quarter 2026 earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. The 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. Please review the disclosures on slide two of the presentation regarding these 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 or guarantee the accuracy of our earnings. Teleconference transcripts are provided by third parties. The only authorized webcasts are located on our website. Again, welcome and thank you for joining us today.

Greg Seals
Greg Seals
Investor Relations at Invesco Mortgage Capital

I'll now turn the call over to Invesco Mortgage Capital Chief Executive Officer, Kevin Collins, for his comments.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Good morning and welcome to Invesco Mortgage Capital's second quarter earnings call. I'll provide a few 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 question-and-answer is our President, David Lyle, and our Chief Financial Officer, Mark Gregson. Before I speak to market developments and our performance for the quarter, I would like to emphasize that our management team remains focused on disciplined investment management, prudent risk-taking, and delivering attractive risk-adjusted returns for our shareholders. We believe our platform is differentiated by deep expertise in agency mortgage markets, strong risk management, and access to extensive resources, market insights, and the global perspectives of Invesco.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

These advantages, combined with the longstanding counterparty relationships that enhance our ability to source, to finance, and to hedge investments, position us well to navigate challenging market environments and capitalize on attractive opportunities. Importantly, our portfolio remains concentrated in Agency RMBS along with a meaningful allocation to Agency CMBS. These sectors continue to offer compelling risk-adjusted value supported by attractive carry, strong liquidity, and the credit protection provided by agency guarantees. Turning to market developments, the second quarter was characterized by improving financial conditions, despite some periodic bouts of volatility driven by geopolitical developments in the Middle East and by shifting expectations for monetary policy.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Resilient economic growth, strong labor markets, and elevated inflation contributed to a bear flattening of the U.S. Treasury yield curve as short-term interest rates rose more than longer-dated yields amid growing expectations that the FOMC's next policy move would be a hike rather than a cut. Although the second quarter was characterized by higher interest rates and more restrictive monetary policy expectations, it's important to note that interest rate volatility declined notably from March levels, while inflation expectations moderated despite ongoing uncertainty surrounding energy prices. The two-year break even fell sharply to 2% at quarter end from 3.25% at the end of the first quarter. These developments supported risk assets broadly, and they contributed to higher coupon Agency RMBS outperformance relative to U.S. Treasuries.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Our Agency RMBS and TBA investments performed well, driven by attractive carry and contracting risk premiums, and our Agency CMBS continued to provide notable stability supported by attractive relative valuations and predictable cash flows. Against this backdrop, we generated an economic return of 3.8%, consisting of monthly dividends of $0.12 per share and a modest decline in book value per share of six-tenths of a percent. We're estimating book value quarter to date is down roughly 2.5%, which backs out our accrued dividend given recent mortgage underperformance. At quarter end, our economic debt-to-equity ratio remained unchanged and our $8.2 billion investment portfolio consisted of $6 billion of Agency RMBS, $1.2 billion of Agency TBA, and $0.9 billion of Agency CMBS. We also maintained a sizable balance of unrestricted cash and unencumbered investments totaling $548.3 million.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Our earnings available for distribution declined from $0.55 in the first quarter to $0.50 in the second quarter. As of quarter end, we hedged 97% of our borrowing costs with interest rate swaps and U.S. Treasury futures. Regarding capital activities, we raised approximately $118 million during the quarter and more than $250 million year to date, enabling us to meaningfully expand our investment portfolio and capitalize on attractive opportunities across the Agency mortgage market. We're encouraged by the growth of the company, which has enhanced our scale, it's improved operating efficiency, and it's reduced expenses on a per-share basis. In addition, we believe our larger equity base and our increased market capitalization will improve the liquidity profile of our common stock, which should ultimately broaden our appeal to investors and support long-term shareholder value.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

As we continue to grow, we believe these benefits, combined with our disciplined investment approach, position us to generate attractive returns and create value for shareholders over time. Entering the third quarter, we remain constructive yet measured in our outlook for Agency RMBS and Agency CMBS as attractive valuations and supportive market fundamentals are balanced against ongoing uncertainty surrounding monetary policy, as well as inflation and geopolitical developments. Despite these uncertainties, we believe valuations for our target assets remain compelling as interest rate volatility and inflation expectations have moderated from their first quarter peaks. Supply and demand dynamics remain favorable as constrained net supply continues to be absorbed by broad-based investor demand. Additionally, we believe a sustained de-escalation of geopolitical tensions in the Middle East will likely benefit our target assets through reduced volatility, but also through improved risk sentiment.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Agency CMBS is also well-positioned, supported by its attractive risk-adjusted yields, its relatively low sensitivity to interest rate fluctuations, and its diversification benefits. Taken together, these macroeconomic and market technical factors create a supportive backdrop for our investment strategy as we enter the second half of 2026. Further, we believe our capital structure and our financing profile provide us with flexibility needed to pursue opportunities while navigating continued uncertainty surrounding monetary policy, economic growth, and geopolitical developments. Away from market developments and our outlook, we remain committed to providing our investors with monthly financial summaries and paying monthly dividends to enhance transparency, deliver more consistent cash flows to income-oriented investors, and to strengthen investor engagement. To summarize, we believe our team, our capital structure, our investment portfolio, we're all well positioned for the future.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Looking ahead, we're excited to leverage our core competencies in Agency MBS and to continue delivering attractive outcome for our investors. Now I'll turn the call over to Brian to go through our portfolio and our performance for the quarter in greater detail.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Thanks, Kevin, and good morning to everyone listening to the call. I'll begin on slide five, which provides detail on interest rates over the past year. As Kevin noted in his opening remarks, the U.S. Treasury yield curve bear flattened in the second quarter as expectations for near-term monetary policy shifted from easing to tightening. Approximately 1/3 of the flattening occurred in the last two weeks of the quarter in response to new Federal Reserve Chairman Kevin Warsh's first FOMC meeting, as the ensuing statement and press conference were more hawkish than initially anticipated. The Chairman sought to cement a tough stance on inflation, emphasizing the price stability portion of the Fed's mandate over that of employment. Financial markets responded accordingly, pricing in tighter near-term monetary policy and lower future inflation expectations as inflation break-evens declined quarter-over-quarter.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Conversely, Treasury yields ended the quarter near their highest levels since early 2025, resulting in 30-year mortgage rates near 6.5% at quarter end and further limiting housing activity as affordability remains challenged. Positively, interest rate volatility recovered from the sharp Iran conflict-driven increase in March, supporting agency mortgage valuations. Lastly, funding markets remained stable throughout the quarter as lending capacity for our target assets remains ample and financing spreads over SOFR largely unchanged in the low teens. Slide six provides more detail on the Agency MBS markets over the past year, with the second quarter highlighted in gray. Despite the bear flattening move in Treasury yields, both Agency RMBS and CMBS spreads tightened over the quarter, consistent with the improved tone in financial conditions and risk sentiment.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Although the entire 30-year coupon stack outperformed Treasury hedges during the quarter, the outperformance was more pronounced in higher coupons, which were primarily supported by the decline in volatility and constructive supply and demand dynamics. Net supply and Agency RMBS remain muted, with year-to-date issuance of just $81 billion through June. On the demand front, investor interest remained broad-based, with overseas investors, banks, money managers, and mortgage REITs all increasing their allocations during the quarter. Demand from Fannie Mae and Freddie Mac continued to underwhelm initial expectations, however, as their combined retained portfolios were little changed during the second quarter. The two entities still have over $100 billion of additional capacity under their portfolio caps, providing some comfort for investors, with the expectation that the GSEs could provide support if valuations were to soften materially.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

The dollar roll market for higher coupon Agency TBAs benefited from favorable technical conditions, with implied financing rates for production coupons remaining below one-month SOFR for much of the quarter, enhancing levered return potential. These constructive supply and demand dynamics also supported the Agency CMBS sector, where issuance volumes moderated during the second quarter, while robust demand from banks, money managers, and mortgage REITs contributed to modestly tighter spreads. Higher mortgage rates, however, weighed on specified pool payoffs and higher coupons as refinancing activity remained subdued and demand for prepayment protection softened accordingly. Despite this near-term pressure, we continue to view prepayment protection obtained through carefully selected specified pools, particularly in premium priced holdings, as an attractive investment for mortgage investors and an effective tool for mitigating the convexity risks inherent in agency mortgage portfolios. Slide seven summarizes the changes in our portfolio over the course of the second quarter.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Our portfolio increased 12.4% quarter-over-quarter as we invested proceeds from ATM issuance. Most of our net purchases occurred in specified pools focused across collateral stories in 30-year 4.5%-6% coupons. In our view, the decline in specified pool payoffs during the second quarter created a compelling opportunity to add exposure at more attractive valuations as we continue to prioritize income protection in the portfolio, with nearly 85% of the portfolio allocated to securities with some form of prepayment protection via specified pools and Agency CMBS. Levered gross returns on higher coupon specified pools hedged with swaps were in the mid to high teens, with the current coupon spread to the five and 10-year SOFR blend ending the quarter at 143 basis points. Modest widening in July has improved those returns into the high teens as of today.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Given the growth in specified pools within the portfolio, our allocation to Agency TBA and Agency CMBS declined modestly from 16.9%-14.7% in Agency TBA and 11.9%-11.1% in Agency CMBS. Both remain core holdings in our portfolio, despite the decline in allocations, with Agency TBA continuing to provide attractive levered gross returns in the high teens as implied financing rates persist near or below one-month repo rates and production coupons. Agency CMBS spreads tightened modestly during the quarter, largely performing in line with lower coupon Agency RMBS, and continued to provide notable stability to the portfolio. Despite limited new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Levered gross returns are in the low double digits and remain consistent with lower coupon Agency RMBS, while financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation to the extent the relative value between Agency CMBS and lower coupon Agency RMBS is attractive, recognizing the overall benefits as the sector diversifies risks associated with Agency RMBS. Slide eight details our funding book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments increased from $5.3 billion-$6.2 billion, as we funded most of our net purchases via repo, while the total notional of our hedges increased from $4.9 billion-$6 billion.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Excluding the implied funding via our Agency TBA allocation, we kept our hedge ratio elevated at 97%, given the increased uncertainty regarding the path of monetary policy. In addition, we continue to maintain significant liquidity with approximately $550 million of cash and unencumbered investments at quarter end, equating to 55% of our total equity. Slide nine provides a detail on our hedge book at quarter end. The composition of our hedges remain weighted towards interest rate swaps, with 79% of our hedges consisting of interest rate swaps on a notional basis and 65% on a dollar duration basis. Swap spreads widened 2 basis points-4 basis points during the quarter, serving as a modest tailwind for our performance. We remain comfortable focusing the majority of our hedges in interest rate swaps, as we believe swap spreads are historically tight and offer an attractive hedge profile relative to U.S. Treasury futures.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Slide 10 is a new addition to the presentation and provides our model-based estimates of book value sensitivity to instantaneous shocks in interest rates and mortgage spreads. Looking first at the table at the top of the slide, we reduced our duration gap from approximately one half year to one quarter year, reflecting a more cautious stance on the direction of interest rates. While this chart assumes a parallel shift in the yield curve, the more significant market development during the second quarter was a pronounced flattening of the yield curve, with two-year U.S. Treasury rates rising nearly 40 basis points while the 10-year rose 15 basis points, which was a headwind for our performance. On the bottom table, the impact of changes in mortgage OAS is largely unchanged quarter-over-quarter as our portfolio leverage remains consistent.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

We continue to view current leverage at levels of 9x debt-to-common equity as appropriate in this environment of elevated uncertainty. To conclude our prepared remarks, the management team remains committed to delivering exceptional investment performance for our shareholders. We are pleased with the performance of our Agency MBS portfolio through a challenging backdrop, as the combination of higher coupon Agency RMBS and our Agency CMBS position has performed well. We are also excited about the recent growth of the company, recognizing the significant benefits this growth has for our shareholders through the efficient deployment of proceeds into attractive investments, lower expenses per share, and better liquidity for our stock.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Although elevated risks in the Middle East and the path of monetary policy may create near-term volatility in mortgage valuations, we continue to believe the medium to long-term outlook for our target assets remains constructive, supported by favorable supply and demand dynamics. Additionally, our liquidity position remains ample, providing substantial cushion to withstand additional market stress while maintaining the flexibility to capitalize on our opportunities and our target assets as the investment environment improves. Thank you for your continued support for Invesco Mortgage Capital, and now we will open the line for question-and-answer.

Operator

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one. You will be prompted to record your name. To withdraw your question, you may press star two. Again, just press star one to ask a question. One moment, please, for our first question. Looks like our first question comes from Marissa Lobo with UBS. You may ask your question.

Marissa Lobo
Marissa Lobo
Analyst at UBS

Good morning. Thanks for taking my question. On the book value move in the second quarter, could you talk to us about the attribution of that decline? How much was spread moves on lower coupons versus hedge performance versus the ATM issuance?

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Sure, Marissa. Hey, it's Brian. Good morning. Thanks for the question. As we mentioned, our higher coupon Agency mortgages performed pretty well. Agency CMBS also modestly tightened on the quarter. I think our slight book value decline can be attributed to a couple of different factors. We have a modestly positive duration gap which as interest rates rose on the quarter, was a slight detractor. Then also maybe the modest flattening of the yield curve also had a minor impact on portfolio.

Marissa Lobo
Marissa Lobo
Analyst at UBS

That's helpful.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

As far as ATM issuance, we are issuing relatively close to par, so there's a modest impact to book value as well.

Marissa Lobo
Marissa Lobo
Analyst at UBS

Got it. Just thinking about the pace of ATM issuance, what is the remaining capacity and what should we look for in Q3, given your current portfolio growth targets and the spread environment?

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Sure. Thanks for your question, Marissa. As you know, we raised roughly $118 million in Q2 our ATM at levels close to book value. Did that at a pretty steady run rate. We'll look to continue to do that to the extent that we can do so responsibly and where it makes sense. Given the low cost associated with our ATM, we think it's a clear benefit to our stockholders, continued focus around looking to reduce our fixed cost per share and improve liquidity in our stock to the extent that we can. Our plan is to look for windows of opportunity to do that in the weeks ahead, quarters ahead.

Marissa Lobo
Marissa Lobo
Analyst at UBS

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Trevor Cranston, Citizens JMP. Your line is open. You may ask your question.

Trevor Cranston
Trevor Cranston
Analyst at Citizens JMP

Great. Thanks. Follow-up question on the ATM. Can you give any update on capital that may have been raised in July so far? If so, where you guys have been deploying that within the coupon stack? Thanks.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

We've continued to look for opportunities to do that and deploy capital. It's been at, as I said prior, just levels close to book value where we've been able to do that, and kind of held our portfolio composition steady to what we were doing in Q2.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Trevor, hey. It's Brian. I would also just add, we do include share count in our monthly updates. That will be forthcoming as well. As far as deployment of proceeds, it's been still kind of in that higher coupon range, 30-year 5s through 6s primarily. Again, as I mentioned in my opening remarks, I think specified pool valuations have become more attractive relative to TBA, just given the softness and payoffs that we've seen into higher rates. I think moving forward, if this environment were to persist, then that would be where we would deploy most assets.

Trevor Cranston
Trevor Cranston
Analyst at Citizens JMP

Got it. Okay. That's helpful. One question, looking at slide six on dollar roll financing. There's been quite an improvement in the financing on 6s in particular. Can you guys just talk about what you think has been driving that improvement, particularly on the 6% coupon dollar roll financing? Thanks.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Trevor, as you can see, that was a pretty significant squeeze on the coupon there at the end of the quarter. If we were to extend that chart another week or so, it kind of bounced back into a more reasonable range. Like I said, there's pretty strong supply and demand technicals going on in that coupon. That coupon tends to be one that CMO desks participate in the most to create floaters and inverse IO and those kind of things. I think in particular, maybe there was a large money manager or something of that nature putting a bit of a squeeze on that coupon. It has bounced back to a more reasonable level. We still think it's, like we said, dollar roll financing is still fairly attractive in those higher coupons. We like the allocation that we have there.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

yeah, that's a bit of an unusual kind of thing that happened at the end of the quarter.

Trevor Cranston
Trevor Cranston
Analyst at Citizens JMP

Okay. Got it. Appreciate the comments. Thank you.

Operator

Thank you. Our next question comes from Doug Harter with BTIG. You may ask your question.

Doug Harter
Doug Harter
Analyst at BTIG

Thanks, and good morning. I was hoping you could talk a little bit about your expectations for kind of the shape of the yield curve, direction of rates under Chair Warsh, and kind of how you think you're positioned and kind of what you're watching for in case you might need to change any of that hedging strategy.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Yeah. Hey, Doug. Good morning. It's Brian. Yeah, certainly, we've had two very different responses or reactions to the two Fed meetings under Chair Warsh. I mentioned what happened in June. Just a couple of days ago, we've had a pretty significant steepening move as the, I guess, the press conference was certainly more dovish than expectations. I think for the most part, our house view is that the Fed will be on hold in monetary policy for the foreseeable future. I think also the renewed geopolitical risks that we've seen over the last few weeks could or does make that outlook a bit more cloudy than it otherwise would have been. There's certainly a chance that there could be a hike in the latter half of 2026. Again, our house view is that they'll be keeping monetary policy on hold for the foreseeable future.

Doug Harter
Doug Harter
Analyst at BTIG

Great. With less forward guidance from Warsh, how does that impact how you think about volatility, how you think about risk positioning? Is there anything that changes?

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Sure. It does, yes. Our expectations are that volatility, particularly in the front end, will increase, or it has increased. That tends to be a bit of a headwind for agency mortgages, and I really think that's why you've seen some modest widening over the last month or month and a half in mortgages. I think current coupon spread to the five and 10 years SOFR blend was 143 basis points at quarter end, and it's more like 150 basis points now. We've seen, call it seven basis points of widening since quarter end. I think that's largely a reflection of that potential increased volatility, both due to reduced forward guidance or the elimination of forward guidance and also the renewed Middle East risks that we've seen. As far as putting a spread range on that, I think we're towards the wider end.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

In March of this year, we kind of hit the 160s area as the Middle East conflict really started to escalate. I think that's probably a pretty good estimate of where we could get at the widest moments here if we were to continue to see those risks escalate. Right now we're at, call it, 150 basis points. I think, again, there's more room for tightening, I think, just based on how supportive the supply and demand technicals are.

Doug Harter
Doug Harter
Analyst at BTIG

Great. Appreciate those answers. Thank you.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

For us, we're noting as well, Doug, that just given a more uncertain path of monetary policy, we have kept our hedge ratio at the high level at 97% quarter end.

Doug Harter
Doug Harter
Analyst at BTIG

That makes sense. Thank you.

Operator

Thank you. Our next question comes from Jason Weaver with JonesTrading. You may ask your question.

Jason Weaver
Jason Weaver
Analyst at JonesTrading

Hey, guys. Good morning, and thanks for the question. Just one from me. It looks like net economic investment spread is vulnerable to additional swap roll-off ahead over the next several quarters. How do you see the EAD run rate evolving from there for just from that factor? Also, when the board sets dividend policy, approximately how far out are they looking?

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Yeah. Thanks for your question. Yeah. Certainly something that we're mindful of as we think about our hedge portfolio. I think the important point here is to really note that we're evaluating the dividend each quarter in context to the EAD, because I assume that's where a lot of people's thinking goes. We're evaluating that each quarter based on current earnings as well as expected earnings, our portfolio composition and market opportunities. Just to get out in front of it, I do think at present, we believe our dividend is competitive. It's in line with long-term levered Agency MBS returns, which we've talked about being important for us. It's also well covered at this point by the EAD. I think as was noted, as our hedge portfolio changes, that will be impacted.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

I think the way we think about it overall, to summarize, is that we believe that we have a dividend that's supported by the long-term earnings power of our portfolio, and that's how we think about it conceptually.

Jason Weaver
Jason Weaver
Analyst at JonesTrading

All right. Thank you for that.

Operator

Thank you. Our next question comes from Jason Stewart with Compass Point. Your line is open. You may ask your question.

Jason Stewart
Jason Stewart
Analyst at Compass Point

Hey, good morning. Thank you. Following up on Doug's question about curve shape, I guess if you're in the camp where the Fed's on hold, you can make the argument that you'll see a steeper curve and more upside potential in tens and mortgage rates. If we follow that logic, one, disagree if you do, two, how do you think about premium at risk or spec pools in that environment? Do they still offer compelling values? I think you touched a little bit on convexity profiles, but maybe dig a little bit more into which subsectors are a focal point, which ones you're avoiding, and how you think about overall premium at risk.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Hey, Jason. Good morning. The first answer is yes, we would agree that if the Fed is on hold, we would expect to see some steepening in the yield curve.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

That's the first part. I guess the second part is more about specified pools. Our weighted average pay up at quarter end was about 28 ticks. That equates to about $50 million of market value. If they all went to zero, that's about the impact would be. I think this kind of also goes into what we've talked about in the past, about the deliverability of generic collateral, the value of specified pools. In the current environment, we would agree that specified pool payoffs could soften. As we've mentioned, we think that's a pretty compelling opportunity to add, because we do think that, going forward, the valuations of generic collateral will continue to deteriorate, for a number of reasons. I think, obviously, loan balance has continued to increase, which makes them more susceptible to refinance activity.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Also, with the proliferation of more technology in the refinancing process, we think that that makes specified pool selection significantly more important. That's kind of what our bread and butter is, that's what we're going to stick to. Particularly, as we said, as those payoffs kind of soften and provide attractive opportunities to add in the current environment, I think that will serve us well as we move forward. I think we've seen it even over the last couple of years, just how much technology has improved the refinancing process and how much quicker the impact is felt. We saw it last fall, again in February of this year. I think, to a certain extent, loan balance continues to be a significantly important aspect. Choosing lower loan balances that are less impacted. We like the first-time homebuyer story as well.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

I think, away from loan balance, we like being relatively well-diversified across the collateral stories. Whether that be geography or high LTV or low FICO, and first-time homebuyer, those are all things that we're kind of looking at on a relative value basis.

Jason Stewart
Jason Stewart
Analyst at Compass Point

Okay. I guess first-time homebuyer would be in this bucket. Are there any new, without giving away sort of, I guess, your secret sauce on where you're focused on deploying capital, are there any new spec pool stories that are being developed that are interesting?

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Yeah. As far as being added to the portfolio yet, no. We're obviously certainly continuing to kind of look at things. There's nothing that I would point to right off the bat, no. First-time homebuyer can be included in all of those buckets. It's typically in kind of a high LTV bucket. That's something that we've been finding quite attractive here lately.

Jason Stewart
Jason Stewart
Analyst at Compass Point

Okay. That's all for me. Thank you.

Operator

Thank you. Our last question comes from Marissa Lobo with UBS. You may ask your question.

Marissa Lobo
Marissa Lobo
Analyst at UBS

Thanks. I just had a quick follow-up on how you're thinking about using swaps versus treasuries for hedging in this rate environment.

Brian Norris
Brian Norris
Chief Investment Officer at Invesco Mortgage Capital

Hey, Marissa. Yeah. We're still very comfortable with most of our hedge book being in interest rate swaps. Again, that's kind of been in the 75%-80% range on a notional basis. Yeah, I think, going forward, we saw a modest improvement in swap spreads during the second quarter, year to date, they're still a little bit tighter. We still feel like that that's a pretty attractive entry point to use for our hedge book.

Marissa Lobo
Marissa Lobo
Analyst at UBS

Okay, great. Thank you.

Operator

Thank you. At this time, I'll turn the call back over to the speakers.

Kevin Collins
Kevin Collins
CEO at Invesco Mortgage Capital

Thanks to everyone that joined our call this morning. We appreciate your interest in Invesco Mortgage Capital and look forward to connecting the quarter's end.

Operator

Thank you. That does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.

Executives
    • Greg Seals
      Greg Seals
      Investor Relations
    • Kevin Collins
      Kevin Collins
      CEO
    • Brian Norris
      Brian Norris
      Chief Investment Officer
Analysts
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