Financial Data and Key Metrics Changes - The company reported a loss of $0.29 per share in Q2 2025, compared to income of $0.18 per share in Q1 2025. Excluding realized and unrealized losses, net income was $0.16 per share, unchanged from Q1 [5] - Book value decreased from $7.94 per share at the end of Q1 to $7.21 at the end of Q2. Total return for the quarter was negative 4.66%, compared to positive 2.6% in Q1 [5] - The company maintained dividends of $0.36 in both quarters [5] Business Line Data and Key Metrics Changes - Average mortgage-backed securities (MBS) during the quarter increased to $6.9 billion from just under $6 billion in Q1. The leverage ratio decreased from $7.8 billion at the end of Q1 to $7.3 billion at the end of Q2 [6] - Prepayment speeds increased to 10.1% in Q2 from 7.8% in Q1, while liquidity rose to 54% from 52% [6] Market Data and Key Metrics Changes - The market experienced significant volatility due to reciprocal tariffs and the passage of a major bill, impacting the overall market outlook [8][9] - The U.S. Treasury curve has been steepening, which is significant for levered MBS investors as it makes hedging positions using swaps more attractive [13][20] Company Strategy and Development Direction - The company is shifting its portfolio strategy towards a more concentrated production coupon bias, moving away from a barbell approach. This strategy has been beneficial in the current steepening yield curve environment [36] - The company expects the investment environment for Agency RMBS to remain attractive, with production coupon spreads at historically wide levels [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the economy despite challenges such as tariffs and high mortgage rates. They anticipate continued strong economic performance driven by government deficits and spending [26][99] - The company expects refinancing activity to remain low due to high mortgage rates and affordability issues, which could make higher coupon assets attractive [24][70] Other Important Information - The company raised $140 million in new equity during the quarter, which was deployed into higher coupon specified pools [45] - The funding environment remains stable, with ample liquidity and no issues in adding repo counterparties [47] Q&A Session Summary Question: Increase in shares and capital raising strategy - Management confirmed an increase in shares due to a capital raise and indicated that future capital raising would depend on stock price and market conditions [54][56] Question: Premium risk in high coupon pools - Management acknowledged the premium risk but noted that the prepayment experience on lower pay-up pools has been favorable, suggesting a cautious but optimistic approach [57][59] Question: Updated book value - Management provided an estimate of a 3-cent decline in book value quarter-to-date, indicating ongoing market fluctuations [65] Question: Outlook for prepayment speeds - Management expects prepayment speeds to remain muted in the third quarter, with seasonal factors influencing the outlook [68][70] Question: MBS spreads and interest rate expectations - Management discussed the potential for MBS spreads to widen or tighten based on economic conditions and emphasized the resilience of the mortgage market despite challenges [91][96]

Financial Data and Key Metrics Changes - The economic return for Q1 2025 was 3%, consistent with the previous quarter, with earnings available for distribution per share at $0.72 [18][19] - Book value per share slightly declined to $19.02, a decrease of less than 1% quarter over quarter [19][22] - The common stock dividend was increased from $0.65 to $0.70 per share, reflecting earnings momentum [7][19] Business Line Data and Key Metrics Changes - The Agency portfolio saw a notional growth of $3.5 billion, driven by purchases of intermediate coupon TBAs [10][11] - The Residential Credit portfolio decreased by $340 million quarter over quarter, ending at $6.6 billion in market value [12][13] - The Mortgage Servicing Rights (MSR) portfolio remained relatively unchanged at $3.3 billion in market value [15][16] Market Data and Key Metrics Changes - Economic leverage increased modestly to 5.7 turns, remaining at the low end of the historical range [9][19] - The housing market showed signs of regional disparity, with home price appreciation slowing down due to increased inventory and affordability issues [13][60] - Inventory levels increased by 18% year over year, impacting existing home sales, which were at their lowest since February [57][58] Company Strategy and Development Direction - The company aims to maintain a conservative leverage approach amidst market volatility while focusing on agency investments due to attractive returns [17][37] - The strategic alignment with industry-leading sub-servicing partners is expected to create competitive advantages in the MSR business [15][16] - The company is optimistic about the potential for regulatory reforms that could positively impact the market dynamics [32][71] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains uncertain, with volatility expected to persist [9][17] - The outlook for the housing market is stable in the long term, supported by low delinquencies and tight underwriting standards, despite short-term pullbacks [60][61] - The company is prepared for potential market fluctuations with a diversified and actively managed portfolio [17][22] Other Important Information - The company has approximately $7.5 billion in assets available for financing, reflecting a $600 million increase compared to the previous quarter [22] - The weighted average repo days extended to 50 days, indicating a strategic shift in financing [21] Q&A Session Summary Question: Update on book value quarter to date - The book value was off roughly 3.5% as of the latest update, improving from a 4.5% decline post-Easter [25] Question: Outlook for spreads and regulatory impacts - Swap spreads have tightened due to volatility, and regulatory reforms are anticipated to positively influence market conditions [26][32] Question: Thoughts on leverage amidst spread widening - The company is balancing the opportunity to increase leverage against the risks posed by high volatility [36][37] Question: Housing price moderation and systemic risks - Housing price increases are regional, with some areas experiencing declines, but overall, the market remains stable due to strong borrower equity [60][61] Question: Agency portfolio supply-demand dynamics - Demand from fixed income funds was strong before recent volatility, with banks and REITs also showing reasonable demand [85] Question: Impact of rate and spread volatility on loan acquisitions - The company is adopting a more defensive posture in response to increased spreads, but lock volumes remain stable [90]

Financial Data and Key Metrics Changes - AGNC reported total comprehensive income of $0.12 per common share for Q1 2025, with an economic return on tangible common equity of 2.4% [15] - The net interest rate spread increased by 21 basis points to 2.12%, driven by higher asset yields and lower funding costs [17] - Quarter-end leverage increased to 7.5 times tangible equity, up from 7.2 times at year-end [15][16] Business Line Data and Key Metrics Changes - Net spread and dollar roll income increased by $0.07 to $0.44 per common share, attributed to a higher net interest rate spread and a larger asset base [16] - The average projected life CPR in the portfolio increased to 8.3% from 7.7% at year-end, while actual CPRs averaged 7% for the quarter, down from 9.6% in the previous quarter [18] Market Data and Key Metrics Changes - The agency MBS market experienced significant pressure, with the current coupon spread to a blend of 5- and 10-year treasury rates widening to 160 basis points [10] - The asset portfolio totaled $79 billion at quarter-end, up about $5 billion from the prior quarter, with 77% of assets having favorable prepayment characteristics [21][22] Company Strategy and Development Direction - The company believes that agency MBS provide compelling return opportunities, especially in light of the deteriorating economic outlook [13] - Regulatory relief is expected to lead to greater demand for agency MBS from banks, which could benefit the treasury and swap markets [23] Management's Comments on Operating Environment and Future Outlook - Management noted that macroeconomic uncertainty is likely to remain elevated in the near term, but the outlook for agency MBS is favorable [14][23] - The management emphasized the importance of maintaining a strong liquidity position to navigate market volatility [45] Other Important Information - The company raised $509 million of common equity through its at-the-market offering program at a premium to tangible net book value, generating meaningful accretion for shareholders [16] - The weighted average coupon of the portfolio remained steady at just over 5% [22] Q&A Session Summary Question: Update on book value - Management indicated that the book value was down in the range of 7.5% to 8% as of the end of last week due to further mortgage spread widening [29] Question: Comfort level with the dividend - Management stated that the total cost of capital has increased, but expected returns still align well with that cost [36][39] Question: Managing extreme rate volatility - Management highlighted that a strong liquidity position allowed them to navigate the volatility without changing asset composition [44][46] Question: Outlook on leverage and hedge ratio - Management expressed comfort with current leverage levels and indicated that spreads at current levels allow for attractive returns without excessive leverage [52][54] Question: Changes to hedge portfolio - Management confirmed that there have not been any substantial changes to the hedge portfolio post-quarter end [100] Question: Prepayment environment and convexity risk - Management noted that the portfolio has more call risk than extension risk, with a significant portion having embedded prepayment protection [120][123] Question: Impact of levered investors on mortgage spreads - Management did not see any force deleveraging impacting the current repricing in the mortgage market, attributing it to bond fund redemptions instead [126][129]

Summary of Key Points from the Conference Call Industry Overview - The discussion revolves around the **Interest Rate Derivatives** market, particularly focusing on the impact of tariffs and macroeconomic uncertainties on market dynamics [2][3][4]. Core Insights and Arguments - **Tariff Uncertainty**: The market is experiencing a "superposition" of states regarding tariffs, leading to significant policy uncertainty. This has resulted in declines in equity markets and increased volatility [3][4]. - **Market Performance**: The S&P 500 index has dropped to its year-to-date low of 5739 points, with the trade-weighted dollar at 113.3 and crude oil prices at $66.4 per barrel. High yield spreads have widened to 337 basis points [5]. - **Yield Forecasts**: UST strategists have revised yield forecasts lower, particularly at the front end, while expecting sustained upward pressure on term premium due to global phenomena such as deficit-funded defense spending in Europe [6]. - **Volatility Trends**: There is a notable increase in intraday volatility, reaching six-month highs, attributed to rising geopolitical risks and macroeconomic uncertainties [28][32]. Trading Recommendations - **Long Term Premium Exposure**: The recommendation includes underweighting the belly of a 1Y forward 3s/7s/30s equal-weighted swap butterfly to gain exposure to rising term premium [14][62]. - **Swap Curve Flatteners**: Initiating 9Mx3M / 15Mx3M swap curve flatteners paired with 2Yx2Y / 3Mx10Y swap curve flatteners is suggested, as yields are expected to remain range-bound [15][63]. - **Volatility Positions**: A bullish stance on long volatility positions in longer expiries is recommended, while maintaining a cautious approach towards short expiry volatility due to rich valuations [36][37]. Additional Important Insights - **Market Depth**: There has been a significant decline in market depth, which is expected to persist as macroeconomic risks remain elevated [26][28]. - **Swap Spreads**: Swap spreads have been relatively quiet, with modest narrowing observed. The focus remains on maintaining exposure to narrower spreads in the belly and a flatter swap spread curve [45][50]. - **Implied Volatility**: Implied volatility has increased modestly across various structures, with a recommendation to buy 1Y forward 1Yx2Y volatility versus 1Y forward 1Yx10Y volatility due to recent cheapening [22][37]. Conclusion - The current market environment is characterized by heightened uncertainty due to tariff policies and macroeconomic factors, leading to strategic recommendations focused on volatility and term premium exposure. The emphasis is on navigating the complexities of the interest rate derivatives market while capitalizing on relative value opportunities.