AGNC Investment NASDAQ: AGNC reported a positive second quarter despite what executives described as a difficult backdrop for fixed income markets, with geopolitical tensions and shifting monetary policy expectations weighing on investor sentiment.
Peter Federico, AGNC’s President, Chief Executive Officer and Chief Investment Officer, said escalating rhetoric and hostilities between the United States and Iran “largely dictated financial market performance” during the quarter. He cited constrained ship traffic through the Strait of Hormuz, elevated energy prices and supply chain disruptions as key macroeconomic concerns that contributed to higher Treasury yields, a flatter yield curve and a market shift from expecting rate cuts to pricing in possible rate hikes by year-end.
Against that backdrop, Federico said AGNC generated a 6.7% economic return for the quarter, supported by its monthly dividend and an increase in tangible book value per common share. He also highlighted that the company’s monthly common stock dividend paid at the beginning of the month marked its 75th consecutive monthly payment of $0.12 per share.
Book Value Gains Driven by Agency MBS Performance
Federico said the improvement in tangible book value was driven by solid performance in agency mortgage-backed securities, which delivered a positive excess return relative to U.S. Treasuries for the fifth consecutive quarter. He called that track record “unusual and particularly noteworthy” given the similar credit quality of agency MBS and Treasuries.
According to Federico, the catalyst for agency MBS performance was an improving technical backdrop. He said elevated mortgage rates have reduced expected net new supply of agency MBS to about $150 billion for the year, materially below estimates from the beginning of the year. Higher mortgage rates have also slowed prepayment speeds, which is expected to reduce runoff from the Federal Reserve’s mortgage portfolio.
Demand, meanwhile, has remained strong. Federico said bond fund inflows totaled more than $400 billion through the first six months of the year and were running at about twice last year’s pace. He added that banks, foreign investors and REITs are also expected to remain net purchasers of agency MBS over the remainder of the year.
Federico contrasted the valuation of agency MBS with corporate bonds, noting that corporate bonds were the best-performing fixed income sector in the second quarter. He said investment-grade and high-yield corporate spreads ended the quarter near historically tight levels, even as 2026 corporate issuance is expected to exceed $1.1 trillion, which he said would make it the largest corporate debt issuance year ever. Agency MBS spreads, by comparison, “have moved little this year and continue to be wide by historical standards,” he said.
Financial Results and Capital Activity
Bernice Bell, AGNC’s Executive Vice President and Chief Financial Officer, said the company reported comprehensive income of $0.52 per common share for the second quarter. The 6.7% economic return on tangible common equity consisted of $0.36 of dividends declared per common share and a $0.20 increase in tangible net book value per share, which she attributed to mortgage outperformance relative to interest rate hedges.
Bell said AGNC’s total stock return for the quarter was 12.3% with dividends reinvested, bringing the company’s one-year total stock return to 36.1%. As of late the prior week, tangible net book value per common share was down about 1%, or a little less than 2% net of the July monthly dividend accrual.
Both ending and average leverage were unchanged at 7.4 times tangible equity, Bell said. AGNC ended the quarter with $7.5 billion of unencumbered cash and agency MBS, equal to 62% of tangible equity.
Net spread and dollar roll income totaled $0.40 per common share, down $0.02 from the first quarter. Bell said the decline primarily reflected a six-basis-point reduction in the company’s net interest spread, driven by lower asset yields from portfolio repositioning and partly offset by modestly lower funding costs.
AGNC also issued $167 million of common equity through its at-the-market offering program during the quarter. Bell said the issuance was completed at a significant premium to tangible net book value per share, while maintaining what she described as a disciplined and opportunistic approach to capital issuance.
Portfolio Repositioning and Hedge Strategy
Federico said agency MBS outperformed both Treasury and swap-based hedges in the quarter, though performance varied meaningfully by coupon. Higher-coupon and production-coupon MBS saw the greatest outperformance as higher interest rates reduced both supply and prepayment concerns.
At quarter-end, AGNC’s asset portfolio had a market value of $97 billion. The company purchased $2.2 billion of primarily intermediate-coupon specified pools during the quarter. Federico said AGNC also sold some lower-coupon MBS and bought higher-coupon MBS early in the quarter to lock in gains from the first quarter’s strong lower-coupon performance and capture the yield benefit associated with higher coupons in a more benign prepayment environment.
As a result, the weighted average coupon on the portfolio increased to 5.04%, while the percentage of assets with favorable prepayment characteristics rose slightly to 79%. The notional balance of AGNC’s hedge portfolio was $66 billion at quarter-end, up slightly from the prior quarter due to the addition of intermediate- and longer-term Treasury-based hedges. The company ended the quarter with a duration gap of 0.7 years, unchanged from the prior quarter.
Management Sees Attractive Returns but Remains Cautious
During the question-and-answer session, Federico said marginal investments were generating return-on-equity potential in the 15% to 17% range when leveraged at AGNC’s typical levels of 7 to 7.5 times. He said those returns align well with the economics of the company’s dividend.
On capital raising, Federico said AGNC took “a lighter touch” in the second quarter because management believed the stock was trading somewhat heavily and did not want at-the-market issuance to disrupt trading. He said AGNC would remain opportunistic and disciplined, using capital activity when it is beneficial to existing shareholders.
Federico acknowledged that the outlook remains affected by elevated geopolitical risk and uncertainty around monetary policy, including a more hawkish message from the new Federal Reserve chairman. However, he said the underlying fundamentals for the mortgage market have continued to improve, particularly due to lower supply expectations and strong demand.
Asked about housing demand, Federico said that, given mortgage rates around 6.5% or higher, AGNC does not expect an uptick in demand in the second half of the year. He said the company would instead expect demand to decline seasonally over the remainder of the year.
In closing, Federico said AGNC was “really happy with the quarter” and looked forward to speaking with investors again after the third quarter.
About AGNC Investment (NASDAQ:AGNC)
AGNC Investment Corp. is a self-managed real estate investment trust (REIT) that primarily acquires and manages a portfolio of residential mortgage-backed securities guaranteed by U.S. government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. The company employs a leveraged total return strategy, borrowing against its securities to enhance income potential while using interest rate hedges to manage risk. AGNC's investment objective is to generate attractive monthly dividends and long-term capital appreciation for its shareholders.
Founded in 2008 and headquartered in Bethesda, Maryland, AGNC focuses exclusively on U.S.
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