AGNC Investment's Q1 2025: Unraveling Dividend Risks, Hedge Strategies, and Interest Rate Contradictions

Dividend risk and spreads, hedge strategy and hedge ratio, interest rate volatility and dividend outlook, leverage and dividend policy, swap spreads and interest margin expectations are the key contradictions discussed in AGNC Investment's latest 2025Q1 earnings call.



Market Volatility and Spread Widening:
- The current coupon spread to a blend of 5- and 10-year treasury rates widened to 160 basis points, reaching the top of the trading range over the last five quarters.
- The performance of agency MBS relative to swaps was substantially worse, with the spread reaching an intraday peak of 230 basis points.
- This volatility was driven by government policy actions, investor sentiment, and broad macroeconomic uncertainty.

Portfolio and Asset Composition:
- AGNC's asset portfolio totaled $79 billion at quarter end, up about $5 billion from the prior quarter.
- The mortgages added were largely high-quality specified pools and pools with other favorable prepayment characteristics, increasing the percentage of assets with favorable prepayment characteristics to 77%.
- The composition of the hedge portfolio saw a shift to include a combination of Ginnie Mae and conventional UMBS.

Financial Performance and Dividend Strategy:
- AGNC reported total comprehensive income of $0.12 per common share, with an economic return on tangible common equity of 2.4%.
- AGNC's total stock return with dividends reinvested for the quarter was positive 7.8%.
- Despite spread widening, the expected return on the portfolio increased due to wider levels, supporting a continued dividend strategy.

Liquidity and Leverage Management:
- AGNC ended the quarter with a strong liquidity position, consisting of $6 billion in cash and unencumbered agency MBS, representing 63% of tangible equity.
- Average leverage increased to 7.5 times tangible equity, driven by a decline in tangible net book value per share and the deployment of recently issued equity capital.
- The company maintained a disciplined leverage strategy to navigate market volatility without compromising asset composition or deleveraging the portfolio.