AGNC Investment Corp Suffers Through Rocky Third Quarter

Good morning, and welcome to our coverage of AGNC Investment Corp's Third Quarter 2026 Shareholder Call. The company recently reported a quarterly fixed income economic return of -12.7%, making Agency MBS the worst-performing fixed income sector in the third quarter.

Fixed income markets experienced significant pressure in the third quarter, particularly in the final weeks of September, as a confluence of adverse conditions caused bond market sentiment to turn decidedly bearish, interest rates to move sharply higher, and interest rate volatility to spike. According to Peter Federico, President, Chief Executive Officer and Chief Investment Officer, 'Periods of instability in the Treasury market often drive more pronounced weakness in the Agency MBS market.' This was indeed the case in the third quarter as AGNC's economic return suffered significantly.

The challenging fixed income environment in the third quarter was driven by a number of negative catalysts, including substantial monetary policy uncertainty, mixed inflation data, the crowding out effect of historically high corporate debt issuance, heightened geopolitical risk, elevated energy prices associated with the Middle East conflict, and stronger than expected domestic economic growth. Monetary policy was perhaps the most significant negative catalyst.

At the Jackson Hole Symposium in August, Chairman Warsh signaled a more restrictive monetary policy stance. Consistent with that message, the Fed raised the federal funds rate by 25 basis points at the September meeting, the first increase since 2023. The market's interpretation and subsequent repricing of monetary policy were much more dramatic, as the expected path of monetary policy increased by about 200 basis points over a very short time period.

In effect, over a six-month period, monetary policy expectations pivoted from a fixed income-friendly view that the Fed would provide additional accommodation by year end to the belief that the Fed had embarked on a full tightening cycle. Against this backdrop, the yield on the 10-year Treasury increased 82 basis points over the course of the quarter, with 54 basis points of that move coming in September alone. A quarterly increase of that magnitude has occurred just on four other occasions over the last 30 years.

This Treasury market weakness spread to other fixed income asset classes, as evidenced by the -3.5% total return of the Bloomberg U.S. Aggregate Bond Index in the third quarter. AGNC's economic return of -12.7% was indeed the worst-performing among its peers.