Invesco Mortgage Capital NYSE: IVR reported a 3.8% economic return for the second quarter of 2026, supported by monthly dividends of $0.12 per share and a modest 0.6% decline in book value per share. The mortgage real estate investment trust said its agency mortgage-backed securities holdings benefited from attractive carry and tighter risk premiums during the quarter.
Chief Executive Officer Kevin Collins said the company entered the third quarter with a constructive but measured outlook for Agency residential mortgage-backed securities, or RMBS, and Agency commercial mortgage-backed securities, or CMBS. He cited appealing valuations, moderated interest-rate volatility and inflation expectations, and supportive supply-and-demand conditions, while acknowledging ongoing uncertainty surrounding monetary policy and geopolitical developments.
Portfolio Growth and Capital Raising
Invesco Mortgage Capital’s investment portfolio totaled $8.2 billion at quarter-end, including $6 billion of Agency RMBS, $1.2 billion of Agency to-be-announced, or TBA, securities, and $0.9 billion of Agency CMBS. The portfolio grew 12.4% from the first quarter as the company invested proceeds raised through its at-the-market equity issuance program.
The company raised approximately $118 million during the second quarter and more than $250 million year to date. Collins said the capital issuance has expanded the company’s investment capacity, improved operating efficiency, reduced expenses on a per-share basis, and could improve the liquidity profile of its common stock over time.
“We’ll look to continue to do that to the extent that we can do so responsibly and where it makes sense,” Collins said in response to an analyst question about future ATM issuance. He said the company will seek windows to issue shares near book value while maintaining a focus on reducing fixed costs per share and improving stock liquidity.
Chief Investment Officer Brian Norris said new investments were concentrated in specified pools of 30-year Agency RMBS with coupons ranging from 4.5% to 6%. The company viewed lower specified-pool prepayments during the quarter as an opportunity to add exposure at more favorable valuations.
- Nearly 85% of the portfolio was allocated to securities with prepayment protection through specified pools and Agency CMBS.
- Agency TBA exposure declined to 14.7% of the portfolio from 16.9% in the first quarter.
- Agency CMBS exposure declined to 11.1% from 11.9%, although management described the sector as a core portfolio holding.
Rates, Mortgage Spreads and Portfolio Positioning
Management said the Treasury yield curve bear flattened during the second quarter, as short-term rates increased more than longer-term yields amid shifting expectations for Federal Reserve policy. Norris said roughly one-third of the curve flattening occurred during the final two weeks of the quarter following Federal Reserve Chairman Kevin Warsh’s first Federal Open Market Committee meeting, which markets viewed as more hawkish than expected.
Treasury yields ended the quarter near their highest levels since early 2025, while 30-year mortgage rates approached 6.5%, according to Norris. Higher rates continued to constrain housing activity, but interest-rate volatility declined from its March levels and helped support agency mortgage valuations.
Agency RMBS and CMBS spreads tightened during the quarter despite the rise in Treasury yields. Higher-coupon Agency RMBS outperformed Treasury hedges, aided by lower volatility and favorable technical conditions. Year-to-date Agency RMBS issuance totaled $81 billion through June, which Norris described as muted, while demand came from overseas investors, banks, money managers, and mortgage REITs.
Management said that mortgage spreads had widened modestly since quarter-end, reflecting expectations for increased front-end rate volatility and renewed Middle East risks. Norris said the current-coupon spread to a blend of five- and 10-year SOFR rates had widened to about 150 basis points from 143 basis points at quarter-end. He noted that spreads reached the 160-basis-point range in March as Middle East conflict risks escalated.
Financing, Hedges and Earnings
The company maintained an economic debt-to-equity ratio of about 9 times at quarter-end. Repurchase agreements financing Agency RMBS and CMBS investments rose to $6.2 billion from $5.3 billion in the prior quarter, while hedge notional increased to $6 billion from $4.9 billion.
Invesco Mortgage Capital hedged 97% of its borrowing costs using interest-rate swaps and U.S. Treasury futures. Interest-rate swaps accounted for 79% of hedges on a notional basis. Norris said the company remains comfortable emphasizing swaps because it views swap spreads as historically tight and attractive relative to Treasury futures.
The company finished the quarter with $548.3 million of unrestricted cash and unencumbered investments, representing approximately 55% of total equity. Management said the liquidity position provides flexibility to withstand market stress and pursue new investment opportunities.
Earnings available for distribution declined to $0.50 per share in the second quarter from $0.55 per share in the first quarter. Collins said the board evaluates the dividend each quarter based on current and expected earnings, portfolio composition, and market opportunities. He said management believes the current dividend is competitive, supported by the portfolio’s long-term earnings power, and covered by current earnings available for distribution.
On the book value decline, Norris said higher-coupon Agency mortgages and Agency CMBS performed well, but the company’s modestly positive duration gap was a slight detractor as rates increased. Yield-curve flattening also had a minor impact, while ATM issuance close to book value had a modest effect.
About Invesco Mortgage Capital (NYSE:IVR)
Invesco Mortgage Capital Inc NYSE: IVR is a real estate investment trust that specializes in investing in U.S. residential mortgage-backed securities. The company's portfolio is weighted toward agency-guaranteed RMBS issued or guaranteed by U.S. government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae. By focusing on collateral backed by federal agencies, Invesco Mortgage Capital seeks to generate attractive returns while managing credit risk through securities that carry explicit or implicit government guarantees.
To enhance its portfolio yield, the company employs leverage through repurchase agreements, warehouse facilities and debt financing.
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