AGNC Investment Corp. (AGNC Quick QuoteAGNC - Free Report) used its second-quarter earnings call to make a forward-looking case for Agency mortgage-backed securities, even as management described the macro backdrop as unusually volatile. The core message was that supply and demand trends in mortgages are improving despite geopolitical and rate uncertainty.

AGNC reported earnings per share (EPS) of $0.40, beating the Zacks Consensus Estimate of $0.38. However, revenues of $305 million fell short of the consensus mark of $364.40 million.

AGNC Investment Corp. Price, Consensus and EPS Surprise

AGNC Investment Corp. price-consensus-eps-surprise-chart | AGNC Investment Corp. Quote

AGNC Sees Better Mortgage Technicals

Peter Federico, president, CEO and chief investment officer, said that the quarter was shaped by rising tensions between the United States and Iran, higher energy prices and supply chain disruptions, all of which pushed Treasury yields higher and flattened the curve. Federico nevertheless argued that the setup for Agency MBS improved.

Federico said that elevated mortgage rates are reducing projected Agency MBS supply while demand remains firm. On the call, he added that bond fund inflows topped $400 billion in the first half, with banks, foreign investors and REITs also expected to remain net buyers of Agency MBS.

Federico also contrasted mortgage valuations with corporate credit and said that Agency MBS still look attractive against corporate bonds that are trading at historically tight spreads despite heavy issuance and rising credit concerns.

AGNC Posted Strong Book Value Gains

Bernice Bell, executive vice president and CFO, said that AGNC generated a 6.7% economic return on tangible common equity in the quarter, made up of $0.36 in dividends per share and a $0.20 rise in tangible net book value per share. Tangible net book value ended June at $8.58, up 2.4% from $8.38 as of March-end.

Comprehensive income came in at $0.52 per common share, while net spread and dollar roll income was $0.40 per share, down from $0.42 in the prior quarter. Bell tied that decline to a 6-basis-point narrowing in net interest spread as lower asset yields from portfolio repositioning partly offset somewhat lower funding costs.

The press release also showed an annualized net interest spread of 2.00% for the quarter, down from 2.06% in the first quarter, with average total cost of funds improving modestly to 2.89% from 2.92%.

AGNC Shifted Toward Higher Coupons

Management said that the portfolio was repositioned to benefit from a more benign prepayment backdrop. Projected CPR fell to 8.6% from 10.3%, while actual CPR was 13.0% compared with 13.2% in the prior quarter.

Federico said that AGNC sold some lower-coupon MBS and bought higher-coupon paper during the quarter. As a result, the weighted average coupon on the portfolio rose to 5.04%, and higher-coupon mortgages delivered the strongest outperformance against hedges.

By quarter-end, the investment portfolio stood at $97.2 billion, with 94% in 30-year fixed-rate Agency MBS and TBA securities. Management also kept the duration gap unchanged at 0.7 years.

AGNC Stayed Selective on Capital Raising

Bell said that AGNC Investment issued $167 million of common equity through its at-the-market program during the quarter, and Federico described that activity as disciplined and opportunistic rather than automatic.

On the Q&A, a BTIG analyst asked about returns on incremental investments and how valuation affects issuance. Federico said that mortgage spreads near 130 to 150 basis points can support levered returns in the 15% to 17% range, aligning with the economics of the dividend.

A Piper Sandler analyst also pressed on lighter issuance. Federico said that management did not want ATM activity to interfere with trading in the stock and chose a lighter touch because market conditions and stock trading dynamics were not as well aligned as in prior periods.

AGNC Put Policy Questions in Focus

The Q&A showed that investors are still focused on market structure as much as on quarterly earnings. Multiple analysts asked about GSE purchase activity, leverage and pending regulatory changes.

Federico said that GSE purchases were only slightly positive in the first two months of the quarter even as mortgage spreads tightened, which showed the agencies were being complementary rather than crowding out private capital. He added that the GSEs still have about $120 billion of purchase capacity.

He also said that the proposed Basel capital rules should be positive for mortgages by allowing banks to hold more mortgage credit at lower capital requirements. On the Fed, Federico said that investors will be watching whether balance-sheet policy eventually preserves some mortgage holdings and supports repo market liquidity.

AGNC Leaves the Call With a Clear Bias

The clearest takeaway from management was not that volatility has faded, but that AGNC believes mortgage market technicals are getting better underneath the noise. Federico repeatedly returned to lower supply, durable demand and relative value versus corporates.

Bell’s update added a near-term reality check, saying tangible net book value was down about 1% as of late last week, or a little less than 2% net of July’s dividend accrual. Even so, leverage remained at 7.4x, and liquidity totaled $7.5 billion, leaving AGNC positioned to stay active.

Zacks Signals on AGNC

AGNC carries a Zacks Rank #3 (Hold), along with a Value Score of B, a Growth Score of C, a Momentum Score of A and a VGM Score of B. Zacks says the Rank is the first step in stock selection, while Style Scores work as a complement, with better letter grades indicating stronger expected performance over the next one to three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Style Score hierarchy still matters, and stronger scores are more favorable than weaker ones. AGNC’s Momentum Score of A and VGM Score of B are constructive signals within that framework, though the Zacks Rank can change as earnings estimate revisions adjust after the quarter.