AGNC Investment (NASDAQ:AGNC) highlighted what management described as an “exceptional” 2025 for shareholders, pointing to strong economic returns and outperformance versus broader equity markets as agency mortgage-backed securities (MBS) benefited from a supportive macro backdrop and tighter spreads. On the company’s fourth quarter 2025 earnings call, executives also discussed a shifting spread regime entering 2026, an evolving policy environment tied to housing affordability, and portfolio positioning around hedging and prepayment risk.
2025 performance and market backdrop
Chief Executive Officer Peter Federico said AGNC generated an economic return of 11.6% in the fourth quarter, contributing to a full-year economic return of 22.7%. He also cited a 2025 total stock return of 34.8% with dividends reinvested, which he said was nearly double the S&P 500’s performance.
- The Federal Reserve’s shift toward lower short-term rates and greater accommodation, along with a transition from quantitative tightening to reserve management.
- Lower interest rate volatility amid “greater fiscal policy clarity” and a stable Treasury supply outlook, including a greater share of short-term debt issuance.
- Reduced uncertainty around GSE reform as Treasury and other officials emphasized mortgage market stability, improved housing affordability, and reducing agency MBS spreads.
Federico noted that the Bloomberg Aggregate Agency Index produced a total return of 8.6% in 2025 and outperformed the Treasury Index by 2.3 percentage points for the year. He also pointed to sizable late-year purchases of MBS by the government-sponsored enterprises (GSEs) as a key driver of spread tightening.
Fourth quarter results, leverage, and liquidity
Chief Financial Officer Bernie Bell reported fourth-quarter comprehensive income of $0.89 per common share. Bell said economic return on tangible common equity was 11.6% for the quarter, comprised of $0.36 in dividends declared and a $0.60 increase in tangible net book value per share. He attributed the book value increase to lower interest rate volatility and tighter mortgage spreads to benchmark rates.
For the full year, Bell said AGNC’s economic return of 22.7% reflected $1.44 per share in monthly dividends and a $0.47 increase in tangible net book value per share.
Bell also provided updates on capital structure and balance sheet metrics:
- Leverage ended the quarter at 7.2x tangible equity, down from 7.6x in the third quarter. Average leverage was 7.4x in the fourth quarter versus 7.5x in the third.
- Liquidity totaled $7.6 billion in cash and unencumbered agency MBS, representing 64% of tangible equity.
- Net spread and dollar roll income was $0.35 per common share, which included a $0.01 per share expense tied to year-end incentive compensation accrual adjustments.
Bell said the company’s hedge ratio was 77% at quarter end, unchanged from the prior quarter, and noted a shift in hedging composition toward a greater proportion of interest rate swaps. He said this positioning kept a “meaningful portion” of funding short-term and variable rate, which he described as consistent with a more accommodative monetary policy environment and supportive if additional rate cuts occur.
Bell added that AGNC expects “a moderate tailwind” to net spread and dollar roll income from lower funding costs following October and December rate cuts, anticipated future cuts, improved funding market stability tied to recent Fed actions, and the shift toward swap-based hedges.
Portfolio positioning: swap hedges, asset growth, and prepayments
Federico said agency spreads tightened across the coupon stack during the quarter, particularly in intermediate coupons, as volatility remained low and demand accelerated, “particularly from the GSEs.” He noted swap spreads on 5- and 10-year swaps widened significantly during the quarter, benefiting agency MBS positions hedged with longer-dated swap-based hedges relative to Treasury-based hedges. He linked the swap spread move to the Fed’s revised supplemental leverage ratio requirement and actions to ease repo funding pressure.
AGNC’s asset portfolio totaled $95 billion at quarter end, up about $4 billion sequentially as the company deployed newly raised capital. Federico said 76% of assets had some form of favorable prepayment attribute, and the weighted average coupon was 5.12%. The hedge portfolio notional balance increased to $59 billion, and in “duration dollar terms” the allocation to swap-based hedges rose to 70% from 59% in the prior quarter.
On prepayments, Bell said the portfolio’s average projected life CPR rose to 9.6% from 8.6% due to lower mortgage rates, while actual CPRs averaged 9.7% in the quarter versus 8.3% in the prior quarter.
Dividend coverage and the “new spread range”
In response to questions about spreads and dividend coverage, Federico said mortgage spreads appear to have “entered a new spread range” after breaking through a level he said had held for nearly three years. He outlined his view of current coupon spreads as:
- Roughly 120–160 basis points versus swaps (he cited “135-ish” as a mid-range level at the time of the call).
- Roughly 90–130 basis points versus Treasuries (he cited about 110 across the curve).
Based on that environment and typical leverage, Federico said he would expect returns in the “13%–15%-ish” range, potentially slightly higher depending on hedge mix.
On dividend coverage, Federico contrasted the economics of the existing portfolio with the longer-term effect of reinvesting in a tighter-spread environment. Using net spread and dollar roll income as a reference point, he characterized $0.35 per share as “sort of normalized” for the quarter due to the $0.01 compensation-related adjustment, and he calculated an ROE of roughly 16% based on $0.36 relative to tangible book value per share of $8.88. He said this aligned with the company’s “total cost to capital,” which he put at about 15.8% after including common and preferred dividends and normalized operating costs.
Federico also said that when deploying newly raised capital, he views the relevant comparison as the dividend yield on AGNC’s stock (which he said was around 12%), and he argued that market returns of 13%–15% remain in excess of that threshold.
Capital activity, policy watch, and 2026 outlook
Bell said AGNC issued $356 million of common equity through its at-the-market (ATM) program during the fourth quarter at a “significant premium” to tangible book value per share, bringing total accretive issuances for 2025 to approximately $2 billion. Federico later said there had been no equity issuance quarter-to-date, and clarified that the company was in a typical blackout period between quarter end and earnings.
Federico emphasized that future issuance would be “opportunistic” and driven by economics rather than a desire to grow, adding that management is “very comfortable” with AGNC’s size, scale, and liquidity.
Looking ahead, Federico said several supportive themes remain in place, including improved funding markets as the Fed increases its balance sheet and enhances the standing repo program. He said net new agency MBS supply in 2026 is expected to be about $200 billion, and when combined with Fed runoff, the private sector may need to absorb roughly $400 billion—similar to the prior two years. On demand, he said the investor base is more diversified and could expand, with GSE purchases potentially consuming about half of the year’s supply.
Federico also discussed policy risks and potential catalysts. He suggested actions such as changes to GSE portfolio caps or further Fed balance sheet shifts could support tighter spreads, while proposals like streamlined refinance initiatives, changes to g-fees, or mortgage portability/assignability could negatively impact spreads by increasing prepayment risk.
Management concluded by reiterating optimism for 2026, with Federico saying AGNC is well positioned as the largest pure-play agency mortgage REIT to deliver “compelling, risk-adjusted returns with a substantial yield component.”
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.
