How Does AGNC Investment Company Work?

Representative metrics and practices that define how AGNC generates income from MBS and manages interest-rate sensitivity.

• Portfolio: predominantly 30-year UMBS with mix of coupons; active coupon rotation to exploit carry and convexity.
• Leverage: disciplined use of repo — commonly around 7–8x tangible equity in typical operating regimes.
• Funding: diversified repo counterparties with SOFR-linked costs; use of term repo and rolling tenors to manage liquidity.
• Hedging: interest-rate swaps, swaptions, Treasury futures and TBA positioning; hedge ratios often approximate or exceed 100% of repo exposure.
• Execution: sources MBS via dealers in the TBA and specified-pool markets; clears derivatives through major counterparties and maintains collateral discipline.
• Track record: hedging framework tested in the 2013 taper tantrum, 2020 COVID shock and the 2022–2023 rate spike, informing current risk rules and liquidity buffers.
• Investor proposition: targets high recurring distributions (AGNC dividend yield varies; check latest market data) and transparent agency MBS exposure for institutional investors.
• Analytics: proprietary prepayment models and roll-optimization to improve net interest spread capture and limit downside during rate moves.
• Resources: scale provides repo funding breadth and best-execution pricing in TBA, improving net interest margin versus smaller mortgage REITs.
• Further reading: see analysis of the company’s strategic approach in Growth Strategy of AGNC Investment.

Funding costs, TBA roll levels, and hedging effectiveness determine near-term earnings and dividend sustainability; 2022–2023 high SOFR pushed repo >5% compressing spreads, while 2024–2025 saw stabilizing rates and improved TBA rolls supporting spread recovery.

• Net spread + roll per share commonly mid-$0.50s to low-$0.60s quarterly in 2024, aiding dividend coverage.
• Dollar-roll (TBA) economics can contribute 50–200 bps of additional carry based on coupon and market structure.
• Realized/unrealized gains are material for book value but not reliable for recurring dividends.
• Internal management keeps operating fees minimal; other income is de minimis versus core MBS earnings.

Facing quantitative tightening and lower Fed/bank MBS demand, AGNC prioritized liquidity, counterparty diversification and defensive hedge positioning to limit book value stress.

• Moderated leverage during the 2022–2023 basis widening to reduce exposure.
• Realized hedge gains that helped offset mark-to-market losses and preserve dividend continuity.
• Expanded repo and dealer relationships to support funding resilience and maintain agency-only scale.
• Enhanced prepayment models as CPRs declined to mid-single digits in 2023–2024 to refine duration/convexity hedges.

If the Fed eases in 2025 and SOFR drifts lower, repo and SOFR funding costs could fall faster than MBS yields, potentially widening net interest spreads and supporting dividend durability and book value recovery.

• AGNC targets moderate leverage and extensive hedge coverage to limit rate-sensitivity losses.
• Opportunistic equity issuance or repurchases will be guided by price-to-tangible-book signals.
• Active rotation between TBA and specified pools to optimize coupons and prepayment profiles.
• Private-market demand replacing Fed purchases could tighten MBS spreads and lift economic returns.