As a result, AGNC's economic return in the first quarter was negative 1.6%. In the first quarter, however, the Middle East conflict caused interest rate volatility to increase and Fed rate cuts to become more uncertain. More importantly, many of the other factors that I discussed actually improved in the first quarter and now further strengthen the outlook for Agency MBS. Most notably, at current spread levels, the return profile on Agency MBS is more attractive.
At the time of our fourth quarter earnings conference call, the spread differential between current coupon MBS and a blend of swaps was 135 basis points. Over the last two months, that spread has ranged between 150 basis points and 175 basis points as a result of heightened geopolitical and macroeconomic risks. The supply outlook for Agency MBS also improved in the first quarter. With mortgage rates now about 50 basis points higher, MBS supply could be $50 billion-$70 billion lower this year.
The demand outlook for Agency MBS improved in the first quarter as well. Money manager demand for MBS increased materially in the first quarter as bond fund inflows came in about double the pace of the previous two years. bank regulators also released their proposed bank regulatory capital framework for comment. As expected, the proposal includes lower capital requirements for high-quality mortgage credit.
| Metric | Period | Current guidance |
|---|---|---|
| Net spread and dollar roll income | next several quarters | high $0.30s to low $0.40s per share |
| Current coupon MBS spread to blend of swaps | current / near term | ~151 bps, ranged 150-175 bps |
| Implied ROE on new investment | current | roughly 15%-17%, centered ~16%, in line with total cost of capital |
| Net new Agency MBS supply | full-year 2026 | $50-$70 billion lower with mortgage rates ~50 bps higher |
| Metric | YoY | Note |
|---|---|---|
| Net spread and dollar roll income | $0.42/share, up $0.07 QoQ (highest in ~a year) | Greater swap allocation in hedges, lower repo funding cost, more favorable TBA implied financing, and a modest rise in asset yield |
| Net interest spread (margin) | +25 bps QoQ to 206 bps | Same swap/repo/TBA financing tailwinds plus reduced compensation expense vs. Q4 year-end accrual |
| Tangible net book value per share | -$0.50 in the quarter | Wider mortgage spreads to benchmark rates driven by March geopolitical volatility |
| At-risk leverage | 7.4x tangible equity at quarter end, up from 7.2x in Q4 (avg unchanged at 7.4x) | Modest portfolio growth while staying within targeted spread-based range (7.0x-7.5x intra-quarter) |
| Average projected life CPR | +70 bps to 10.3% from 9.6% | Prepayment model updates and portfolio composition changes, partly offset by higher mortgage rates |
| Actual CPR | 13.2% vs. 9.7% prior quarter | Faster realized prepayment speeds during the quarter |
| Weighted average portfolio coupon | declined to 4.95% from 5.12% | Purchases and rotation down in coupon into low-coupon specified pools amid heavy money-manager index buying |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| TBA implied financing / roll specialness | Unattractive for much of the prior two years (through repo levels since the 2023 regional banking crisis, QT and regulation) | Back to through or equal to repo, meaningfully better for several coupons; enabled long/short TBA positions and lifted dollar roll income | — |
| Agency MBS spreads vs. swaps/Treasuries | 135 bps (current coupon to swap blend) at Q4 call | ~150-175 bps to swaps, ~120 bps to Treasuries; viewed as compelling absolute and relative value | — |
| GSE activity | Jan 8th directive for GSEs to buy $200 billion of Agency MBS pushed spreads tighter | Framed as opportunistic/economic (buying when spreads are wide), reducing mortgage spread volatility and attracting a broader investor base | — |
| Hedging / duration posture | Swap hedge allocation 70% of duration dollars; hedge ratio kept low to benefit from lower short rates | Swap allocation raised to 78% (hedge notional $64B); hedge ratio net of receiver swaptions ~83%; positive duration gap for down-rate prepayment protection; described as neutral | — |
| Capital raising | Expected slower, opportunistic issuance | $401 million raised in Q1, faster than planned to capitalize on volatility; accretive and mostly deployed at ~16% returns vs. ~13.5% dividend yield | — |
| Low- vs. high-coupon performance | n/a | Low coupons tightened ~10 bps to Treasuries on heavy money-manager inflows; high coupons widened ~5 bps; bond-fund inflows now slowing | — |