AGNC Investment (NASDAQ:AGNC) reported a negative economic return for the first quarter of 2026 as agency mortgage-backed securities (MBS) markets swung from early-quarter strength to late-quarter volatility tied to geopolitical uncertainty. Management said, however, that book value has rebounded in April and that the spread backdrop for agency MBS has become more attractive.
Quarter marked by “two very divergent” MBS themes
President, CEO and Chief Investment Officer Peter Federico said agency MBS performance in the quarter reflected “two very divergent investment themes.” In January and February, he said the administration’s focus on reducing interest rate volatility and supporting mortgage spread stability drove strong fixed income performance. Federico pointed to “President Trump’s January 8th directive instructing the GSEs to purchase $200 billion of agency mortgage-backed securities,” which he said pushed MBS spreads toward the low end of the recent three-year range.
Economic return negative; April book value rebound noted
On the call, the company reported a comprehensive loss of $0.18 per common share for the first quarter. Management said economic return on tangible common equity was -1.6%, consisting of $0.36 in dividends declared per common share and a $0.50 decline in tangible net book value per share, “driven by wider mortgage spreads to benchmark rates.”
AGNC also provided an update on more recent book value performance. “As of late last week, our tangible net book value per common share was up approximately 6% for April or 5% net of our monthly dividend accrual,” the company said on the call, adding that the April move “has now largely reversed the first quarter decline.”
Federico emphasized that, despite quarter-over-quarter spread widening versus swaps, agency MBS “outperformed U.S. Treasuries and investment-grade corporate bonds in the first quarter,” which he said highlighted diversification benefits of the asset class.
Net spread and dollar roll income increased as funding conditions improved
Executive Vice President and CFO Bernie Bell said net spread and dollar roll income was $0.42 per common share, up $0.07 from the fourth quarter. Bell attributed the increase largely to a 25-basis-point rise in net interest spread, driven by:
- a greater allocation of interest rate swaps within the hedge portfolio,
- lower repo funding costs,
- more favorable TBA implied financing levels, and
- a modest increase in asset portfolio yield.
Federico added that the quarter’s margin improvement put returns “really close to 20%” on a return-on-equity basis, but he characterized that level as “above the long-run economics of the current environment.” Looking ahead, he said a “good range of expectation” for net spread and dollar roll income over the “relatively near term” would be “high 30s and low 40s.”
In response to a question about “specialness” and TBA implied financing, Federico said conditions have shifted meaningfully compared to recent years, when implied financing was often unattractive versus repo. He said funding pressures have eased as the Federal Reserve stopped quantitative tightening, began reserve management purchases that expanded its balance sheet, and as the standing repo facility was “rebranded” as the standing repo program. Federico also cited the release of a revised proposed bank regulatory capital framework. He said these factors reduced balance sheet constraints and helped return implied TBA financing “back to through or equal to repo levels,” with some coupons “meaningfully better” than repo.
Portfolio repositioning: lower coupons, more swaps, and prepayment focus
Federico said first-quarter agency MBS performance varied sharply by coupon and hedge type. Low coupon MBS “meaningfully outperformed” high coupon securities, which he attributed to index buying from money managers amid strong bond fund inflows. He said lower coupon MBS tightened “about 10 basis points to Treasuries” during the quarter while higher coupon MBS widened “about 5 basis points on average.”
He also noted that tightening swap spreads affected hedged performance. “10-year swap spreads, for example, tightened by almost 10 basis points,” Federico said, adding that an MBS position hedged with pay-fixed swaps versus Treasuries would have experienced spread widening “all else equal.” He tied the swap spread tightening to Middle East uncertainty.
At quarter end, Federico said the market value of AGNC’s portfolio was $95 billion. During the quarter, AGNC purchased $1.7 billion “of predominantly low coupon specified pools” and rotated part of the portfolio down in coupon. The weighted average coupon declined to 4.95% from 5.12% in the prior quarter. He said the share of assets with favorable prepayment characteristics increased slightly to 77%.
Bell said the average projected life CPR rose to 10.3% at quarter end from 9.6%, driven largely by prepayment model updates and composition changes, partly offset by higher mortgage rates. Actual CPRs averaged 13.2% for the quarter versus 9.7% in the prior quarter.
On hedging, Federico said the notional balance of the hedge portfolio increased to $64 billion due to adding shorter-term pay-fixed swaps prior to the March rate sell-off, while the company reduced Treasury-based hedges. In duration-dollar terms, the swap hedge allocation rose to 78% from 70% the previous quarter. He said AGNC continues to favor operating with a positive duration gap, describing it as “additional prepayment protection” in a down-rate scenario.
Capital management and outlook for agency MBS spreads
Bell said the company ended the first quarter with leverage of 7.4x tangible equity, slightly higher than 7.2x at the end of the fourth quarter, while average leverage for the quarter was unchanged at 7.4x. He also said AGNC finished the quarter with $7 billion of unencumbered cash and agency MBS, representing 60% of tangible equity.
During the quarter, Bell said AGNC issued $401 million of common equity through its at-the-market program “at a significant premium to tangible net book value per share,” which he said continued the company’s capital management strategy and generated accretion for stockholders.
Federico said the pace of issuance ended up faster than he expected due to volatility and because additional capital can be beneficial in stressed environments. He also said issuance was accretive because shares were trading at a premium to book value, and he contrasted the company’s deployment returns—he cited “around 16% or so”—with what he described as a stock dividend yield of “around 13.5%.” Federico added that not all proceeds had been deployed, though “most of them” have been.
On valuation, Federico said wider spreads improved the return profile for agency MBS. He cited the spread between current coupon MBS and a blend of swaps moving from 135 basis points at the time of the fourth-quarter call to a recent range of 150 to 175 basis points amid higher geopolitical and macro risks. In the Q&A, Federico said spreads were “right back” to around 151 basis points and estimated returns “broadly in the 15%-17% range, centered right around 16%,” which he said aligns with AGNC’s total cost of capital.
Federico also pointed to shifting supply and demand dynamics, including lower expected net new agency MBS supply if mortgage rates remain higher, increased money manager demand tied to stronger bond fund inflows, and proposed regulatory capital changes that include “lower capital requirements for high-quality mortgage credit.” He added that further administrative actions to improve housing affordability—such as more aggressive GSE purchases or higher GSE portfolio limits—could support mortgage performance, as could Fed actions to improve accessibility and functionality of the standing repo program.
While acknowledging near-term uncertainty, Federico said the technical backdrop for agency MBS improved during the quarter and reiterated a favorable outlook, adding that a prompt resolution of the Middle East conflict could reduce volatility and inflationary pressures.
About AGNC Investment (NASDAQ:AGNC)
AGNC Investment Corp. is a self-managed real estate investment trust (REIT) that primarily acquires and manages a portfolio of residential mortgage-backed securities guaranteed by U.S. government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. The company employs a leveraged total return strategy, borrowing against its securities to enhance income potential while using interest rate hedges to manage risk. AGNC’s investment objective is to generate attractive monthly dividends and long-term capital appreciation for its shareholders.
Founded in 2008 and headquartered in Bethesda, Maryland, AGNC focuses exclusively on U.S.
