Invesco Mortgage Capital NYSE: IVR executives said improving financial conditions and falling interest-rate volatility helped drive stronger results in the fourth quarter of 2025, as the mortgage REIT benefited from agency mortgage outperformance and a more supportive funding backdrop. Management also discussed how it is positioning the portfolio following significant spread tightening in 2025 and the announcement of additional agency mortgage purchases by government-sponsored enterprises (GSEs).
Macro and market backdrop: rate cuts, lower volatility, and a steeper curve
CEO John Anzalone said financial conditions improved during the quarter, citing Federal Reserve rate cuts, solid corporate earnings, improved conditions, and strong economic growth. He noted inflation readings “trended modestly lower,” with headline CPI at 2.7% and core CPI at 2.6%, while the labor market weakened with the economy losing 67,000 jobs during the quarter. Anzalone said the Federal Open Market Committee cut the federal funds target rate by 25 basis points at each of its last three meetings in 2025, attributing the move to labor market weakness despite inflation remaining above the Fed’s target.
Chief Investment Officer Brian Norris added that despite two 25 basis point cuts during the fourth quarter, the 10-year Treasury yield ended the year largely unchanged at 4.17%. However, Norris highlighted meaningful yield-curve steepening, with 2-year Treasury yields falling 14 basis points while 30-year yields rose 11 basis points during the quarter. He said the steeper curve is supportive of longer-term investments such as agency RMBS and agency CMBS.
Norris also described late-September and October pressure in short-term funding markets, noting that one-month repo spreads widened roughly five basis points. He said the Fed’s December decision to end quantitative tightening helped alleviate those pressures, and that the Fed’s indication it would purchase shorter-term Treasury securities as needed to maintain ample reserves contributed to an improvement in repo spreads heading into 2026.
Quarter performance: book value gain and economic return
Anzalone said agency mortgages outperformed Treasuries during the quarter, helped by lower rate volatility and a supportive supply-and-demand environment. He added that agency mortgages delivered their strongest calendar-year performance relative to Treasuries since 2010, driven by reduced volatility, fixed-income inflows, and increased demand from Fannie Mae and Freddie Mac investment portfolios.
On company results, Anzalone reported book value per common share rose 3.7% in the quarter to $8.72. Combined with the company’s “recently increased dividend of $0.36,” he said the company generated an 8% economic return for the quarter.
Norris said momentum continued into early 2026, stating that book value was up approximately 4.5% since year-end through Wednesday of the week of the call.
Portfolio positioning: higher leverage, agency RMBS focus, and stable CMBS exposure
Anzalone said the company modestly increased leverage to 7 times, which he characterized as consistent with a constructive investment environment. At year-end, he said the company’s $6.3 billion portfolio included $5.4 billion in agency mortgages and $900 million in agency CMBS. He also said liquidity remained robust, with $453 million in unrestricted cash and unencumbered assets.
Norris said the agency RMBS portfolio increased 11% quarter over quarter as the company invested proceeds from at-the-market (ATM) issuance and paydowns and increased leverage modestly. Purchases were primarily focused in 5% and 5.5% coupons, while allocations to 6% and 6.5% declined due to paydowns and overall portfolio growth.
He noted that price appreciation has lifted the share of specified pools valued at premium dollar prices, and said the company continues to favor specified pools with lower loan balances—particularly in higher-coupon exposures—because of their “superior predictability of future cash flows.”
Regarding agency CMBS, Norris said risk premiums were largely unchanged during the quarter and that higher issuance was readily absorbed by money manager inflows and continued bank demand for stable cash flows. Given what he described as more attractive relative value in agency RMBS, he said the company did not add to its agency CMBS position during the quarter, and its allocation declined modestly as the overall portfolio grew. He added that levered gross ROEs in agency CMBS were in the low double digits.
Funding, hedging, and market technicals
On funding and hedging, Norris said repurchase agreements collateralized by agency RMBS and agency CMBS rose from $5.2 billion to $5.6 billion, in line with asset growth. Total notional hedges increased from $4.4 billion to $4.9 billion, and the hedge ratio edged up from 85% to 87%.
Norris said the hedge book remained weighted toward interest rate swaps, with 78% of hedges on a notional basis and 57% on a dollar-duration basis. He also said swap spreads widened during the quarter, which he described as a tailwind for performance, and reiterated the company’s preference for swaps given his view that swap spreads remain “historically tight” and provide an attractive hedge profile relative to Treasury futures.
He also pointed to notable improvement in the TBA dollar roll market during the quarter, saying implied financing improved and became more competitive versus repo funding. Norris said that shift reflected strong demand for agency mortgage collateral amid limited net supply.
Q&A: leverage discipline, prepayments, capital actions, and spread outlook
During Q&A, Norris said the company is comfortable with the slightly higher leverage level, but noted that with tighter spreads following the GSE buying announcement, management could “let leverage drift a little bit,” with leverage potentially coming down as book value increases.
Asked where the company is finding value within the coupon stack, Norris pointed to improved dollar roll conditions “primarily in the belly,” which he described as roughly 3.5% to 5.5% coupons. He also said management expects future purchases to skew lower in the coupon stack, noting a policy focus on housing affordability and bringing mortgage rates down.
On prepayments, Norris said higher-coupon prepayment speeds did rise in the second half of the year in 6% and 6.5% holdings, but he said the company’s prepayment-protected specified pools were less impacted than generic collateral. He said performance across factors like FICO and LTV was “relatively in line with expectations.”
On capital structure, Anzalone said the company selectively accesses its ATM program when common issuance provides “clear benefits to shareholders,” and described the ATM as the most efficient capital-raising mechanism. He said the quarter’s issuance was modest and indicated the company would provide more color in February alongside its monthly dividend update. In a follow-up, Anzalone said the decision to issue stock considers both price-to-book and whether there are accretive investment opportunities, including how long the “payback period” would be when issuing near or below book value. Norris added qualitative considerations such as economies of scale, expense reduction, and stock liquidity.
On the outlook for agency mortgage spreads after significant tightening in 2025, Norris said the “magnitude” of book value sensitivity to spread changes remains similar given leverage levels, but he said the firm’s expectation for further tightening is “significantly reduced.” He said the market has largely priced in the GSEs’ announced $200 billion of purchases, and suggested meaningful additional tightening would likely require larger bank participation and/or higher GSE retained-portfolio caps. Norris added that if the pace of GSE buying accelerates and caps are raised from current levels, spreads could potentially move into another regime and tighten “another 10 to 15 basis points” from current levels.
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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