AGNC Outperforms S&P 500 by 2x, But Can the Gains Hold?

Date of Call: Jan 27, 2026

Financials Results

• EPS: $0.89 per common share (comprehensive income)

Guidance:

• Mortgage spreads to swaps likely in a new 120-160 bps range (current ~135 bps), and to Treasuries in a 90-130 bps range (~110 bps).
• Expected ROEs in the 13%-15% range, potentially slightly higher, depending on hedge mix and leverage.
• Net spread and dollar roll income expected to benefit from lower funding costs, rate cuts, and a shift toward more swap-based hedges.
• Potential for additional government actions (e.g., GSE portfolio cap changes, Fed balance sheet adjustments) to support spread stability and tightening.
• Outlook for interest rate volatility to remain generally low, which is positive for agency MBS.

Business Commentary:

Outstanding Shareholder Returns:

• AGNC Investment Corp. reported an economic return of 11.6% for the fourth quarter, contributing to a full-year return of 22.7%. The total stock return for 2025 was 34.8%, nearly double the S&P 500's performance.
• This was driven by the company's actively managed portfolio of agency mortgage-backed securities and associated hedges.

Favorable Macroeconomic Environment:

• The Bloomberg Aggregate Agency Index outperformed the Treasury Index by 2.3 percentage points, or 36% in 2025.
• This was attributed to the Fed's shift toward lower short-term rates, greater accommodation, and a stable supply outlook for Treasury securities.

Portfolio and Hedging Strategy:

• AGNC's hedge ratio was 77%, with a shift toward a greater proportion of interest rate swaps.
• This strategy is consistent with the current accommodative monetary policy environment and positions the company to benefit from potential future rate cuts.

Liquidity and Leverage Position:

• The company concluded the quarter with a strong liquidity position of $7.6 billion in cash and unencumbered Agency MBS, representing 64% of tangible equity.
• Leverage was maintained at an average of 7.4x, reflecting a balance between risk management and capital efficiency.

Equity Issuance and Capital Management:

• AGNC issued $356 million of common equity through its at-the-market offering program, contributing to total accretive common equity issuances of approximately $2 billion for the year.
• This was done at a significant premium to tangible book value per share, enhancing book value for shareholders.

Sentiment Analysis:

Overall Tone: Positive

• "2025 was an exceptional year for AGNC shareholders." "AGNC’s 11.6% economic return in the fourth quarter drove our impressive full-year economic return of 22.7%." "total stock return in 2025 was 34.8%...nearly double the performance of the S&P 500." "The underlying fundamental and technical backdrop for Agency mortgage-backed securities continues to be favorable."

Q&A:

• Question from Bose George (KBW): Can you talk about where you see spreads currently versus where you saw it in the fourth quarter? And just help us walk through the dividend coverage.
  Response: Spreads have entered a new, tighter range (current coupon to swaps ~135 bps). Net spread income of $0.35 per share aligns with a ~16% ROE, which matches the total cost of capital (~15.8%), indicating strong dividend coverage. New capital deployment offers returns (13%-15%) above the stock's dividend yield (~12%).

• Question from Doug Harter (UBS): Can you talk about how you’re thinking about the risk or the potential benefit that could get you either to the high end or the low end of those ranges and how that informs your decision around leverage today?
  Response: The most likely scenario is spreads moving sideways, but actions like GSE portfolio cap changes or Fed balance sheet adjustments could push spreads tighter. Leverage will be adjusted based on spread stability; more information is needed before changing the current leverage profile.

• Question from Crispin Love/Jason Stewart/Rick Shane (Piper Sandler/Compass Point/JPMorgan): If you were in their shoes, what would you do to address the affordability questions?
  Response: Continue focusing on spread stability and affordability; key actions include maintaining the GSEs' explicit guarantee and potentially adjusting portfolio caps to keep spreads attractive and support market sustainability.

• Question from Trevor Cranston/Eric Hagen (Citizens JMP/BTIG): You talked about swap spreads and increasing the amount of swaps in the portfolio during the fourth quarter. I was wondering if you could give us an update on your view going forward if you think there’s room for spreads to continue widening in the swap market and sort of where you think ultimately those settle out?
  Response: Swap spreads may stay in the current range or widen further due to Fed balance sheet actions and regulatory easing. The outlook is favorable for swap spreads, providing a 25-30 bps carry advantage, which benefits ROE.

• Question from Crispin Love/Jason Stewart/Rick Shane (Piper Sandler/Compass Point/JPMorgan): Just one follow-up on the leverage question. Your views seem to be constructive on overall agency MBS investment environment... how would you gauge your positivity on the investing environment right now for agency MBS kind of versus a quarter ago, six months, a year ago, and how that might impact leverage?
  Response: The environment is more positive due to lower spreads and greater certainty at the upper end of the range, thanks to government focus on affordability. This reduces downside risk for a levered investor.

• Question from Trevor Cranston/Eric Hagen (Citizens JMP/BTIG): You talked about the positive technicals in the market... I was curious if we could get your thoughts on volatility going forward, if you think that continues to come down or what your thoughts are around that.
  Response: Interest rate volatility is expected to remain generally low, though not as low as in 2025, due to administration focus on rate stability and a potential slower grind lower in rates, which is positive for agency MBS.

• Question from Crispin Love/Jason Stewart/Rick Shane (Piper Sandler/Compass Point/JPMorgan): One on capital activity today. Could you give us an update on equity issuance? And then in terms of your comments, maybe just tie in sort of expectations for ATM issuance.
  Response: No equity issuance quarter-to-date (typical blackout period). ATM issuance will be opportunistic and driven by economics; there is no urgency to grow as the company is comfortable with its size, scale, and liquidity.

• Question from Crispin Love/Jason Stewart/Rick Shane (Piper Sandler/Compass Point/JPMorgan): In terms of the MBS market, we’ve talked a lot about demand from the GSEs. But outside of the GSEs, when we think about traditional buyers like banks... what’s your take on how those two buyers evolve over the course of the next 12 months?
  Response: Demand from banks, money managers, foreign investors, and REITs is expected to remain strong. A more diverse investor base and potential regulatory changes could support demand, potentially outpacing the ~$400 billion private sector absorption forecast for 2026.

• Question from Rick Shane (JPMorgan): Sounds like you guys are slowing issuance given the incremental return on deployed capital... was that actually by choice, or are you blacked out on the ATM until you issue earnings?
  Response: The decision to issue equity is opportunistic and driven by economics, not a need for scale. The quarter-to-date lack of issuance is due to the typical post-earnings blackout period.

• Question from Trevor Cranston/Eric Hagen (Citizens JMP/BTIG): I just want to get your perspective on prepayment speeds. Maybe at what level for mortgage rates do you think really gets the refi market moving? And would you adjust any of the hedges or take off some of the longer-dated hedges if it looked like the refi market was really going to accelerate?
  Response: Prepayment risk is greater, and portfolio composition becomes key. Asset selection, coupon distribution, and pool characteristics are critical. Hedging strategy includes maintaining a positive duration gap and using receiver swaptions for protection, rather than adjusting longer-dated hedges specifically for prepayment acceleration.

• Question from Harsh Hemnani (Green Street): How is [the barbelled coupon environment and GSE focus on par coupons] affecting your ability to pick pools in this environment where there’s less outstanding at the coupons you favor and then also deploy capital into those coupons?
  Response: Ample liquidity exists across the coupon stack in the $9 trillion market. While GSE purchases may focus on the par coupon to affect primary rates, there is sufficient liquidity for AGNC to position its portfolio in various coupons, including 4s, 4.5s, and others.

• Question from Harsh Hemnani (Green Street): On the duration gap, you touched on this a little bit. It’s been growing for the past few quarters... How should we expect that to evolve over the coming quarters? And then what’s the boundaries around that that we should be thinking about?
  Response: Duration gap is currently around 0.5 years and may widen further if rates fall, but is expected to operate historically between 0.25 and 0.75 years, depending on ten-year rate movements.

Contradiction Point 1

Outlook on Interest Rate Volatility

Contradictory statements on the direction and drivers of future interest rate volatility.

Do you see potential for swap spreads to continue widening, and where do you expect them to settle? How do you view future volatility trends in the MBS market? - Trevor Cranston (Citizens JMP), Eric Hagen (BTIG)

2025Q4: Volatility is expected to remain generally low in 2026, which should be positive for agency MBS. - Peter Federico(CEO)

What's your outlook on volatility—do you expect it to continue declining or are there factors that could push it higher? - Trevor Cranston (Citizens JMP)

2025Q3: AGNC sees more reason for spreads to potentially break through the lower end of the range than to widen to the upper end. - Peter Federico(CEO)

Contradiction Point 2

Duration Gap Management

Inconsistent guidance on the target range and evolution of the positive duration gap.

How are the barbell-shaped mortgage market's reduced par coupons and GSE focus on par coupons impacting your pool selection and capital deployment, and how do you expect the growing duration gap and down rate protection to evolve in the coming quarters, including their boundaries? - Harsh Hemnani (Green Street)

2025Q4: The company expects to operate with a gap typically between 0.25 and 0.75 years. - Peter Federico(CEO)

Could the potential for a more positive near-term outlook, given the unchanged net duration gap and hedging strategy, be linked to increased down rate protection? - Kenneth Lee (RBC Capital Markets)

2025Q3: AGNC would like to operate with a slightly larger positive duration gap in the future for additional down-rate protection. - Peter Federico(CEO)

Contradiction Point 3

Leverage Target and Outlook

Contradiction on whether current leverage is optimal or if higher leverage is a viable path.

How does your risk-benefit analysis for achieving the high or low end of your ranges influence your leverage decisions today? - Doug Harter (UBS)

2025Q4: The company needs more information on the sustainability of spread stability before deciding on a different leverage profile. - Peter Federico(CEO/CIO)

How do you approach leverage management in shock scenarios, and would improved clarity on spreads and GSE reform allow for higher leverage? - Harsh Hemnani (Green Street Advisors)

2025Q2: The company is more confident in the outlook today than in April, which allows for more confidence in potentially operating at higher leverage. - Peter Federico(CEO/CIO)

Contradiction Point 4

MBS Spread Environment and Trajectory

Contradiction on whether spreads are at the high end of a range or entering a new, tighter range.

Where are current spreads compared to Q4, and can you explain the dividend coverage? - Bose George (KBW)

2025Q4: Potential spread for current coupon to swaps is **120-160 bps**, around **135 bps** currently. - Peter Federico(CEO/CIO)

Have MBS spreads entered a new secular trend and how are relative value assessments within specified pools being evaluated? - Jason Weaver (JonesTrading Institutional Services)

2025Q2: Current levels (around 200 bps to swaps) are at the high end of this range. - Peter Federico(CEO/CIO)

Contradiction Point 5

Outlook and Sustainability of Swap Spreads

Contradiction on whether current swap spreads are a sustainable long-term state or if they are expected to normalize.

Do you expect swap spreads to continue widening in the swap market, and where do you think they will ultimately settle? - Trevor Cranston (Citizens JMP), Eric Hagen (BTIG)

2025Q4: Believes they will stay in the current range, with potential for further widening. The Fed's shift to reserve management and eased regulations are positive long-term for swaps. - Peter Federico(CEO)

What is the risk of spreads widening further and how are you managing it, and given swap spread volatility, are you considering adjusting the hedge portfolio? - Doug Harter (UBS)

2025Q1: These levels are not seen as sustainable long-term. - Peter Federico(CEO)