AGNC Investment Corp. Earnings: Strong Year, Cautious Path

AGNC Investment Corp. ((AGNC)) has held its Q4 earnings call. Read on for the main highlights of the call.

AGNC Investment Corp. Earnings Call Signals Strong Performance With Measured Caution

AGNC Investment Corp.’s latest earnings call conveyed a generally positive but disciplined tone, as management highlighted exceptional 2025 performance, robust liquidity and accretive capital issuance, all supported by favorable macro and technical conditions. At the same time, executives emphasized growing caution: mortgage spreads have tightened, prepayment risk is rising, and the return on new investments now sits closer to the firm’s cost of capital, prompting more moderate leverage and a slower pace of capital deployment. The message to investors was clear: recent returns have been outstanding, but the next leg of performance will require careful navigation of policy risks and market dynamics.

Strong Quarterly and Full-Year Returns

AGNC delivered standout results in 2025, underscoring why mortgage REITs have drawn fresh attention from yield-focused investors. The company reported an economic return of 11.6% for the fourth quarter and an impressive 22.7% for the full year, driven by both book value gains and dividend distributions. Comprehensive income reached $0.89 per common share in Q4. For shareholders, the total stock return in 2025 was 34.8% with dividends reinvested, nearly double the performance of the S&P 500. This combination of income and capital appreciation positioned AGNC as one of the stronger total-return stories in the income-oriented segment of the market.

Multi-Quarter and Long-Term Outperformance

Beyond a single year, management emphasized a track record of sustained value creation. Over the past nine quarters, AGNC generated a cumulative 50% economic return, comprised of a 10% increase in book value and $3.24 per share in monthly dividends. Since its inception, the company has delivered over 11% annualized total stock return with dividends reinvested, reinforcing its reputation as a consistent income generator. For investors evaluating long-term holdings, the call underscored that AGNC’s performance has not just been cyclical or opportunistic, but durable across multiple market environments.

Favorable Market Backdrop and Index Outperformance

Management credited much of the recent upside to a highly supportive market backdrop for agency mortgage-backed securities (MBS). The Bloomberg Aggregate Agency Index returned 8.6% in 2025, beating the Treasury Index by 2.3 percentage points, or roughly 36% in relative terms. Key drivers included lower short-term interest rates, reduced rate volatility and substantial purchases of agency MBS by government-sponsored enterprises (GSEs). These technical and macro tailwinds tightened spreads and boosted MBS valuations, helping AGNC’s portfolio outperform broader fixed income benchmarks.

Strengthened Capital Position and Ample Liquidity

The call highlighted AGNC’s significantly improved capital and liquidity profile, which provides flexibility in a more nuanced return environment. At the end of the fourth quarter, the company held $7.6 billion of cash and unencumbered agency MBS, representing a sizable 64% of tangible equity. AGNC issued $356 million of common equity via its at-the-market (ATM) program in Q4 and roughly $2 billion over the course of 2025. Management stressed that these issuances were accretive to book value, meaning new equity was raised at favorable valuations and deployed at attractive returns. The combination of strong liquidity and accretive capital raises positions the firm to act opportunistically if better entry points emerge.

Portfolio Expansion and Full Deployment of Raised Capital

AGNC’s asset base continued to grow as the firm put its new capital to work. The investment portfolio totaled $95 billion at quarter end, up about $4 billion from the prior quarter. At the same time, the notional balance of hedges increased to $59 billion, reflecting a fully deployed capital position rather than idle dry powder. This growth was pursued within the company’s risk framework, indicating that management used the favorable 2025 environment to scale the portfolio while maintaining a closely managed hedge profile.

Shift Toward Swap-Based Hedge Positioning

A major theme on the call was the evolution of AGNC’s hedge strategy. The company kept its hedge ratio at 77%, but significantly shifted the composition toward swap-based hedges. The share of hedge exposure in swaps climbed from 59% to 70%, an 11-percentage-point increase. This adjustment is designed to better align funding and asset risks and to benefit from movements in swap spreads, which have become a more important driver of agency MBS performance. Management suggested that this mix enhances risk management while preserving the ability to capture relative-value opportunities across rates markets.

Net Spread Income, Dollar Rolls and Dividend Coverage

From an income perspective, AGNC reported stable core earnings power. Net spread and dollar roll income came in at $0.35 per share in Q4, unchanged from the prior quarter. Adjusting for a one-time compensation accrual, normalized income was roughly $0.36 per share. Management indicated that, on the existing portfolio, this level of spread income translates into a return on equity in the mid-teens—about 16% on book value cited during the call. That figure is broadly in line with AGNC’s cost of capital and supports the current dividend policy, suggesting that distributions remain covered by underlying earnings rather than one-off gains.

Spread Tightening Squeezes Incremental Return Potential

While 2025 was highly profitable, the environment for new investments has become less generous. Mortgage spreads tightened materially in Q4 and, in management’s view, have settled into a new, lower trading range. Current-coupon MBS trade around 135 basis points over swaps and roughly 110 basis points over Treasuries. At these levels, AGNC estimates that returns on fresh deployments are in the 13%–15% range—much closer to the firm’s total cost of capital of around 15.8%. This compression reduces the margin of safety on new investments and helps explain the company’s more measured stance on growth going into 2026.

Rising Prepayment Speeds and Yield Pressure

Another emerging headwind is increasing prepayment risk, which can hurt realized yields when mortgages are paid off earlier than expected. AGNC reported that its average projected life conditional prepayment rate (CPR) rose by 100 basis points to 9.6%, up from 8.6% previously. Actual CPRs averaged 9.7% in Q4 versus 8.3% in the prior quarter. Higher prepayments can force the reinvestment of principal into lower-spread assets and erode the return profile of premium-priced MBS. While 76% of AGNC’s assets are said to have favorable prepayment attributes, management acknowledged that this trend bears close watching as it may pressure future earnings if speeds accelerate further.

Moderated Leverage Reflects a Cautious Stance

AGNC modestly reduced balance sheet risk to reflect tighter spreads and elevated prepayment uncertainty. End-of-quarter leverage fell to 7.2 times tangible equity, down from 7.6 times in the prior quarter, with average leverage slipping to 7.4 times from 7.5 times. Management framed this step-down as a deliberate, cautious move rather than a reaction to stress, signaling that future leverage decisions will hinge on the stability of spreads and the evolution of policy and technical factors. For investors, this means the pace of portfolio growth may moderate, but the risk profile should remain contained if market conditions deteriorate.

Policy Reform as a Key Risk Factor

The call also flagged policy and regulatory developments as a central risk. Potential changes in GSE frameworks—such as streamlined refinancing programs, adjustments to guarantee fees, or mechanisms that make mortgages more portable—could materially change prepayment behavior and spread dynamics in agency MBS. If such reforms accelerate refinancing or erode the economics of existing pools, they could compress returns and impact valuations. AGNC does not forecast specific policy outcomes, but its management clearly views this as a risk that can alter the investment landscape, especially given how supportive GSE activity has been to date.

More Selective and Opportunistic Capital Deployment

After an aggressive and accretive issuance year in 2025, AGNC signaled that capital raising and deployment will now be more restrained. The company disclosed that it has not issued any shares via its ATM program quarter-to-date, a notable shift from the roughly $2 billion raised last year. While management remains open to issuing equity when economics are compelling, the combination of lower incremental returns and higher uncertainty has reduced the urgency to grow. Investors should expect capital actions to be more tactical, with the focus on preserving book value and protecting return on equity rather than maximizing asset size.

Dependence on Policy and Technical Tailwinds

Management underscored that recent performance has been heavily supported by policy and technical tailwinds, including GSE purchases, Treasury and Federal Reserve actions, and improved funding markets. These factors contributed to tighter spreads and lower volatility, which are ideal conditions for leveraged MBS strategies. However, AGNC acknowledged that this dependence introduces event risk: if GSE buying slows, Fed runoff accelerates, or funding markets re-price, spreads could widen and volatility could rise, potentially reversing part of the recent gains. The firm’s risk posture—higher liquidity, moderated leverage, and robust hedging—is designed in part to hedge against these potential changes.

Constructive but Disciplined Outlook for 2026

Looking ahead, AGNC’s guidance for 2026 painted a constructive yet disciplined outlook. Management sees current-coupon MBS spreads in a new range of roughly 120–160 basis points over swaps and 90–130 basis points over Treasuries, with current levels around 135 and 110 basis points, respectively. At these spreads, portfolio returns on equity are expected to land in the low-to-mid teens, around 13%–15%. Normalized net spread and dollar roll income of $0.35–$0.36 per share on a tangible book value of $8.88 implies an ROE near 16%, roughly in line with the estimated 15.8% total cost of capital. The firm plans to maintain a hedge ratio around 77%, keep a modestly positive duration gap of about 0.25–0.75 years (currently roughly 0.4–0.5), and operate with mid-7x leverage while preserving strong liquidity levels similar to the $7.6 billion in cash and unencumbered MBS reported at year-end. On the market side, AGNC expects about $200 billion of net new agency MBS supply in 2026, with the private sector absorbing around $400 billion when Fed runoff is included and GSE purchases potentially consuming about half of that new issuance. Capital actions, including any future ATM issuance, will remain opportunistic rather than programmatic.

In sum, AGNC’s earnings call delivered a story of robust recent performance and solid fundamental positioning, tempered by a clear acknowledgment that the easy money from wide spreads and benign volatility may be behind the company for now. Management’s strategy centers on preserving strong liquidity, keeping leverage in check, refining hedge structures, and being selective with new capital deployment. For investors, the key takeaway is a balance between attractive ongoing income in the low-to-mid-teens ROE range and rising sensitivity to policy, prepayment and technical shifts that could reshape returns in the coming year.