AGNC Investment Corp. Q1 FY2026 earnings call

• Agency MBS performance varied by coupon and hedge type. Low-coupon MBS outperformed high-coupon. Swap spreads tightened, affecting MBS performance. • Purchased $1.7 billion of predominantly low-coupon specified pools and rotated portfolio down in coupon. • Hedge portfolio notional balance increased, swap hedge allocation rose. • Favor operating with positive duration gap for prepayment protection.

Agency MBS performance in Q1 was driven by divergent themes. In Jan-Feb, strong performance due to admin actions, but in Mar, Middle East conflict caused spread widening. AGNC's economic return was negative 1.6%. Agency MBS outperformed Treasuries and investment-grade corporate bonds. At start of year, factors like low interest rate volatility were expected, but Middle East conflict changed that. Current spread levels make agency MBS more attractive. Supply outlook improved as MBS supply could be lower. Demand outlook improved with money manager inflows and favorable bank capital requirements. Net spread and dollar roll income was 42 cents per common share, up 7 cents from Q4. Tangible net book value per share declined in Q1 but reversed in April. Leverage was 7.4 times tangible equity. Portfolio weighted average coupon declined to 4.95%, percentage of assets with favorable prepayment characteristics increased to 77%.

• Middle East conflict's duration and economic implications unknown, but recent developments encouraging. • Current spread levels make agency MBS attractive. • Supply and demand outlooks for agency MBS improved. • Actions by administration to improve housing affordability likely. • Expect net spread and dollar roll income to be in high 30s to low 40s range over near term. • Leverage level to be informed by market conditions, economic outlook, monetary policy, geopolitical uncertainty, and administration actions.

• Middle East conflict causing interest rate volatility and uncertain Fed rate cuts. • Geopolitical and macroeconomic risks creating challenging investment environment near term. • Uncertainty around duration and economic implications of Middle East conflict.

Q: Asked about spreads comparison from end of Q4 to now and ROE implication.

A: Spreads around 151 basis points now, returns in 15%-17% range.

Q: Asked about specialness improvement and contribution.

A: TBA implied financing levels improved, allowing TBA position with both longs and shorts contributing to dollar roll income.

Q: Asked about core earnings sustainability.

A: Net spread and dollar roll income increased, expected to be in high 30s to low 40s range.

Q: Asked about hedging hedge ratio.

A: Hedge ratio net of receiver swaptions about 83%, positioned to benefit from lower short-term rates.

Q: Asked about optimal leverage in policy-supportive but volatile environment.

A: Leverage sized to withstand uncertainty, will be informed by market conditions.

Q: Asked about GSE activity shaping trading strategy.

A: GSEs act opportunistically, benefiting mortgage rates and spread.

Q: Asked about portfolio addition in volatility and coupon selection.

A: Portfolio growth in Q1 in lower coupons due to bond fund inflows, will continue to be opportunistic.

Q: Asked about timing of equity raises and rest of year.

A: Equity raised in Q1 accretive, will be opportunistic in deploying proceeds.

Q: Asked about PBA and specified pools.

A: TBA implied financing levels allow flexibility to deploy and rotate, will continue to operate with high specified pools and positive duration gap.