Annaly's Q1 2025 Earnings Call: Navigating Contradictions in Dividend Strategy and Economic Leverage

Dividend durability and coverage, economic leverage strategy, swaps market and risk, MSR strategy and pricing, and dividend strategy are the key contradictions discussed in Annaly Capital Management's latest 2025Q1 earnings call.



Agency Portfolio Growth:
- Annaly Capital Management's agency portfolio saw 3.5 billion in notional portfolio growth during Q1 2025.
- The growth was driven by purchases of intermediate coupon TBAs, which offered favorable convexity profiles and attractive carry.

Economic Returns and Dividend Increase:
- The portfolio delivered a 3% economic return for Q1 2025, and the common stock dividend was increased to $0.70 per share.
- The economic returns were attributed to healthy fixed income demand and positive risk sentiment.

Residential Credit Segment Activity:
- The residential credit portfolio ended the quarter at $6.6 billion in market value, with $2.4 billion in capital.
- The decrease in portfolio size was due to opportunistic sales and increased securitizations, with AAA non-QM spreads approximately 20 basis points cheaper on the quarter.

Mortgage Servicing Rights (MSR) Performance:
- The MSR portfolio ended the first quarter relatively unchanged at $3.3 billion in market value, with an aggregate borrower rate of 3.23%.
- The performance was attributed to low note rates and low delinquencies, contributing to positive tailwinds from increased escrow balances and float income.

Volatility and Regulatory Environment Impact:
- Interest rates and financial assets experienced volatility following tariff announcements, leading to a cheapening in balance sheet intensive assets and widening of agency MBS spreads.
- The company remains optimistic about regulatory reform leading to a potential widening of swap spreads, which could benefit spread products in the future.