AGNC Investment Corp. (AGNC) Presents at Credit Suisse 24th Annual Financial Services Forum (Transcript)

Summary of AGNC Investment Corp. Conference Call Company Overview - Company: AGNC Investment Corp. (NASDAQ:AGNC) - Participants: - Peter Federico - CEO - Sean Reid - EVP, Strategy & Corporate Development - Douglas Harter - Credit Suisse Industry Context - Industry: Agency Mortgage-Backed Securities (MBS) Key Points and Arguments Agency MBS Spreads - Positive outlook for Agency MBS spreads, which tightened from unsustainable levels of close to 200 basis points to about 150 basis points off the 10-year treasury [3][4] - Historical average spread over the last 14-15 years is around 80 basis points, indicating current spreads are still wide by historical standards [4] - Expectation that spreads will remain wider than historical averages due to changes in market dynamics and reduced Fed participation [17] Impact of Yield Curve - Inverted yield curve currently shows a spread of almost 85 basis points between two-year and ten-year rates, but this is not expected to persist [11][12] - Mortgages remain attractive relative to the yield curve, with the potential for good returns despite the inversion [12][13] Market Dynamics - The Fed's historical participation in the Agency MBS market has been significant, but a gradual exit is anticipated, leading to wider spreads [15][16] - Bond market liquidity is expected to remain lower due to structural changes post-Dodd-Frank, which may lead to increased volatility [16][17] Economic Outlook - Organic supply of Agency MBS is projected to be around $200 billion this year, with manageable demand from the private sector [19][20] - Interest rate volatility is expected to decline as the Fed approaches a pause in rate hikes, which is positive for mortgages [21] Bank Demand - Banks have been significant buyers of mortgages but slowed down due to capital losses from mark-to-market adjustments [23] - Potential for positive surprises in bank demand as interest rates stabilize [23] Credit Outlook - Weakness in the economy could lead to a rotation from credit investments to Agency MBS, which would be beneficial for spreads [26] Risks and Concerns - Macroeconomic uncertainty and inflation could destabilize fixed income markets, leading to potential widening of spreads [28][29] - The lack of market liquidity and risk-takers may lead to increased volatility in the future [30][32] Leverage and Risk Management - Current leverage level is around 7.5x, with a focus on maintaining sufficient unencumbered capital to withstand adverse market conditions [35] - Emphasis on managing risk through a diversified hedge portfolio across the maturity spectrum [47] Dividend Strategy - Dividend levels are aligned with the economic return outlook, which is currently estimated at mid-teens [68][69] - The company aims to generate the best economic return for shareholders without targeting a specific dividend [67] Capital Raising Strategy - Capital raising activities are evaluated based on their accretive nature to existing shareholders and the overall leverage position [61][62] - The company is cautious about growing its capital base for the sake of growth, focusing instead on maintaining operational efficiency [64] Conclusion - AGNC Investment Corp. is positioned to navigate the current market dynamics with a focus on maintaining attractive spreads, managing risk effectively, and aligning dividend strategies with economic returns. The outlook remains cautiously optimistic, with attention to macroeconomic factors and potential shifts in bank demand.