Invesco Mortgage Capital (US:IVR)2025-07-25 14:00Financial Data and Key Metrics Changes - The economic return for the quarter was negative 4.8%, consisting of a $0.34 dividend per common share and a $0.76 decline in book value per common share [7] - The debt to equity ratio decreased from 7.1x at the end of March to 6.5x at the end of June, indicating a more defensive posture due to elevated near-term uncertainty [7] - As of July 18, 2025, the estimated book value per common share is between $7.99 and $8.31, reflecting a slight recovery in performance [8][25] Business Line Data and Key Metrics Changes - The Agency RMBS portfolio decreased by 15% quarter over quarter as the company managed risk amid trade policy uncertainty [18] - The allocation to Agency CMBS increased from 15% at the end of Q1 to just over 17% as of June 30, 2025, due to the decline in the Agency RMBS portfolio [20] Market Data and Key Metrics Changes - Interest rates declined across the front end of the Treasury yield curve during Q2, while long-term rates increased, reflecting expectations for accommodative policy from the FOMC [6][11] - The two-year Treasury yield declined by 16 basis points, while the thirty-year yield increased by 20 basis points, leading to the steepest two-thirty spread in nearly 3.5 years [11][12] Company Strategy and Development Direction - The company maintains a cautious near-term outlook but is optimistic about the long-term demand for Agency mortgages due to attractive valuations and stabilization in interest rate volatility [8][25] - The focus remains on specified pools with predictable prepayment behavior, particularly in lower loan balance collateral [18] Management's Comments on Operating Environment and Future Outlook - Management noted that financial conditions were volatile in Q2 but ended modestly accommodative, with expectations for two rate cuts by year-end and additional cuts in 2026 [5][25] - The company believes that further easing of monetary policy will lead to a steeper yield curve and a decline in interest rate volatility, supporting long-term demand for agency mortgages [25] Other Important Information - The company’s liquidity position is strong, providing a cushion for potential market stress while allowing for capital deployment as the investment environment improves [25] - The financing market for Agency CMBS remains robust, with no concerns about deterioration during a widening event [62] Q&A Session Summary Question: How does the company view the relative risk versus reward for high coupon RMBS? - The company believes that spreads reflect the risk accurately and has reduced exposure to higher coupon RMBS due to their sensitivity to interest rate volatility [29][30] Question: What is the company's comfort level on leverage? - The company is comfortable with its current leverage, which is lower than in Q1, and does not feel the need to increase leverage to meet return goals [33][34] Question: What is the outlook for swap spreads and the mix of hedges? - The company anticipates that swap spreads will widen, which would be beneficial, and is currently at maximum allocation to interest rate swaps [37][38] Question: What are the views on core earnings and dividends? - The company expects ROEs to remain attractive, supporting the current dividend without significant changes in the near term [41][45] Question: How does the company feel about CMBS spreads when the Fed cuts rates? - The company is comfortable with the financing market for Agency CMBS and expects spreads to tighten as the Fed cuts rates [60][62]