Financial Data and Key Metrics Changes - Book value per common share decreased by 4.8% to $8.92, resulting in an economic return of negative 0.5% for the quarter when combined with a $0.40 dividend per share [11][12][33] - Earnings available for distribution declined from $0.68 in Q3 to $0.53 in Q4 due to a one-time charge associated with the redemption of Series B preferred stock [14] Business Line Data and Key Metrics Changes - Agency RMBS portfolio decreased by 11% quarter-over-quarter as lower coupon specified pools were sold to manage leverage and fund agency CMBS purchases [24] - Approximately 85% of the $5.4 billion investment portfolio was invested in agency mortgages, with 15% in agency CMBS [13] Market Data and Key Metrics Changes - Long-term treasury yields ended the quarter sharply higher, with the two-year breakeven rising from 1.77% in September to 2.54% by year-end [7][8] - Agency RMBS underperformed treasury during Q4, primarily in lower coupons due to a sharp rise in interest rates limiting demand for discount securities [9][10] Company Strategy and Development Direction - The company remains cautious on agency mortgages in the near term due to shifting expectations for monetary and fiscal policy, which may lead to elevated interest rate volatility [15] - Long-term outlook for agency mortgages is favorable, expecting improved demand in higher coupons as interest rate volatility declines [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the economic environment remains uncertain, with expectations for only one to two additional cuts in the federal funds target rate through the end of 2025 [8][9] - The company believes it is well-positioned to navigate current mortgage market volatility due to moderate leverage and robust liquidity [33][34] Other Important Information - The company improved its capital structure by redeeming Series E preferred stock, funded primarily with lower-cost repurchase agreements [12][32] - The debt-to-equity ratio increased to 6.7 times at the end of Q4, up from 6.1 times at the end of Q3 [13] Q&A Session Summary Question: How does the company view the risk-reward trade-off of agency RMBS and agency CMBS? - The company added most agency CMBS exposure at the beginning of Q4, but as spreads tightened, it became less attractive compared to agency RMBS, which performed well in early Q1 [36][38][40] Question: What is the company's comfort level with the current dividend? - The board will review various factors, including projected ROEs and competitive dividend yields, before making a recommendation on the dividend [41][43][44] Question: Will there be any incremental changes to the hedge position going forward? - The company is comfortable with the current hedge mix but will continue to monitor swap spreads and may target 20-30% of treasury futures in the current environment [47][49][51] Question: Is the cautious outlook on agency mortgages rate-driven or related to GSE reform? - The market has not reacted to GSE reform headlines, and the company's cautiousness is primarily due to ongoing monetary and fiscal policy uncertainties [54][56][58]
Invesco Mortgage Capital (IVR) - 2024 Q4 - Earnings Call Transcript