AGNC Investment (NASDAQ:AGNC) reported a comprehensive loss of $1.28 per common share for the third quarter of 2026, as a sharp rise in Treasury yields and widening mortgage-backed securities spreads pressured the company’s portfolio.
The company’s economic return on tangible common equity was negative 12.7% during the quarter, consisting of $0.36 per share in declared dividends and a $1.45 decline in tangible net book value per share, Chief Financial Officer Bernie Bell said. Bell attributed the book-value decline to the underperformance of AGNC’s mortgage assets relative to its interest-rate hedges.
As of the Friday before the earnings call, tangible net book value per common share had risen 3% from the end of the quarter, or slightly more than 2% after accounting for the October dividend accrual, Bell said.
Rates and MBS markets face substantial pressure
President, Chief Executive Officer and Chief Investment Officer Peter Federico said fixed-income markets deteriorated significantly late in the quarter amid monetary-policy uncertainty, mixed inflation data, high corporate debt issuance, geopolitical risks, elevated energy prices and stronger-than-expected domestic economic growth.
Fed Chairman Warsh’s signal of a more restrictive policy stance at the August Jackson Hole Symposium, followed by a 25-basis-point federal funds rate increase in September, prompted a substantial market repricing, Federico said. Market expectations shifted from three rate cuts by year-end earlier in the year to four rate hikes by mid-2027 following the September meeting.
The 10-year Treasury yield rose 82 basis points during the quarter, including a 54-basis-point increase in September. The Bloomberg U.S. Aggregate Bond Index returned negative 3.5% in the period, while the Bloomberg Agency MBS Index posted a negative 4.25% total return. On a duration-matched basis, Agency MBS underperformed Treasuries by nearly 120 basis points, Federico said.
“Since 2010, the Agency MBS Index has underperformed Treasuries by a wider margin in only two other quarters,” Federico said.
Company cites more attractive mortgage-market outlook
Despite the quarter’s market weakness, Federico said Agency MBS valuations and cash-flow characteristics have improved. At quarter-end, new-production current-coupon Agency MBS yielded close to 6.5%, while current-coupon MBS spreads were about 135 basis points to Treasuries and 165 basis points to swaps.
He said extension risk has diminished because mortgage durations have largely reached an inflection point at current rate levels. Prepayment risk has also decreased: Less than 2% of the outstanding mortgage universe had a 50-basis-point refinancing incentive, according to Federico. Even if mortgage rates declined by 100 basis points, the refinanceable share of the market would rise to only about 10%.
Federico also pointed to reduced expected Agency MBS supply as primary mortgage rates remained near 7.5%, as well as anticipated demand from bond funds, banks, government-sponsored enterprises and other investors. Still, he cautioned that Agency MBS performance could remain sensitive to elevated interest-rate volatility and macroeconomic uncertainty in the near term.
During the question-and-answer session, Federico said AGNC’s expected return on equity for newly purchased mortgage assets was approximately 18% to 20% at prevailing mortgage valuations. He said that estimate assumed spreads around 135 basis points to Treasuries and 165 basis points to swaps, along with leverage in the mid-7x range.
Capital raise supports asset growth and liquidity
AGNC was added to the S&P MidCap 400 Index during the quarter. Bell said the related index rebalancing activity created significant trading volume in the company’s shares, enabling AGNC to issue $992 million of common stock through its at-the-market offering program at what he described as a significant premium to tangible net book value.
The proceeds helped the company maintain its leverage profile while expanding its asset portfolio by $2.5 billion on a cost basis at wider spreads. Leverage increased to 7.9 times tangible equity at quarter-end, from 7.4 times at the end of the second quarter. AGNC ended the period with $6.3 billion of unencumbered cash and Agency MBS, equal to 57% of tangible equity.
Net spread and dollar roll income was $0.37 per common share, down $0.03 from the previous quarter. Bell said the decline reflected a 14-basis-point decrease in net interest spread as higher funding costs outweighed higher asset yields, along with a modest drag from capital that had been raised but not yet deployed.
Portfolio shifts toward specified pools and longer-term hedges
AGNC’s asset portfolio had a market value of $94 billion at quarter-end. The company purchased $2 billion of primarily intermediate-coupon specified pools during the quarter and shifted the portfolio toward higher coupons, increasing its weighted average coupon to 5.13%.
Federico said 83% of portfolio assets had favorable prepayment characteristics following the purchases and repositioning. He noted that specified pools can provide both call protection when rates fall and extension protection when rates rise.
AGNC increased its hedge portfolio, excluding receiver options, by more than $12 billion from the prior quarter to $86 billion, largely through longer-term Treasury-based hedges. The company added hedges to offset mortgage-duration extension as rates rose, leaving its duration gap nearly unchanged at 0.8 years at quarter-end.
Federico said the company may opportunistically increase leverage if market stability improves, but it had prioritized risk management during the volatile quarter. He also said AGNC would likely use more swap-based hedges over time after relying heavily on Treasury hedges for delta hedging during the quarter.
About AGNC Investment (NASDAQ:AGNC)
AGNC Investment Corp. is a real estate investment trust (REIT) that invests primarily in residential mortgage pass-through securities and collateralized mortgage obligations for which principal and interest payments are guaranteed by a U.S. government-sponsored enterprise or a U.S. government agency. These investments are commonly referred to as agency mortgage-backed securities.
The company seeks to generate income through the difference between the yield on its investment portfolio and its borrowing costs, while managing interest-rate, prepayment and other market risks.
