ARMOUR Residential REIT's Q1 2025 Earnings Call: Unpacking Contradictions in Leverage, Liquidity, and Dividend Strategy

Leverage and risk management strategy, outlook on swap spreads and hedging strategy, liquidity and leverage strategy, dividend sustainability, and hedge strategy and swap spreads are the key contradictions discussed in ARMOUR Residential REIT's latest 2025Q1 earnings call.



Dividend and Book Value Trends:
- ARMOUR paid monthly common stock dividends of $0.24 per common share per month, totaling $0.72 for the quarter.
- The book value per common share was $18.59 as of quarter-end, with a more recent estimate of $16.56 on April 23.
- The stable dividend is maintained due to attractive returns available in the medium term, despite book value fluctuations caused by market volatility.

Portfolio Performance and Strategy:
- ARMOUR's agency portfolio experienced a modest 2 basis points of tightening in Q1, followed by a 15 basis points widening in MBS spreads in April due to global market volatility.
- The portfolio is diversified across 30-year coupon stacks, with an overweight in 5.5% and 6% coupons, aiming to capitalize on attractive spread and carry opportunities.
- The strategy is driven by a focus on liquidity, leveraging supportive technicals, and participating in spread tightening while maintaining defensiveness against market volatility.

Interest Rate Environment and Spread Dynamics:
- The rates market is pricing in over 3 Fed rate cuts this year, reflecting a dovish reaction to a weakening economy, which is favorable for MBS.
- Spreads between MBS and SOFR are hovering around 200 basis points, presenting significant value for mortgage investors.
- ARMOUR seeks to capitalize on these dynamics by investing in attractive agency MBS opportunities with compelling ROEs.

GSE Reform and Regulatory Developments:
- Bill Pulte's comments at the FHFA and Scott Bessent's actions at the Treasury suggest potential acceleration of GSE reform under the current administration.
- ARMOUR views structural changes as a long-term process and anticipates broad implications for economic stability and growth.
- Key aspects of reform to watch include sovereign backstop changes, guarantee fees, and structural modifications to risk weights and ratings.