AGNC earnings name for the interval ending December 31, 2024.
Picture supply: The Motley Idiot.
AGNC Funding Corp. (AGNC 0.15%)
This autumn 2024 Earnings Name
Jan 28, 2025, 8:30 a.m. ET
Contents:
- Ready Remarks
- Questions and Solutions
- Name Members
Ready Remarks:
Operator
Good morning, and welcome to the AGNC Funding Corp. fourth quarter 2024 shareholder name. [Operator instructions] Please notice as we speak’s occasion is being recorded. I’d now like to show the convention over to Katie Turlington in investor relations.
Katie Turlington — Investor Relations
Thanks all for becoming a member of AGNC Funding Corp.’s fourth quarter 2024 earnings name. Earlier than we start, I might wish to assessment the protected harbor assertion. This convention name and corresponding slide presentation comprises statements that, to the extent they aren’t recitations of historic information, represent forward-looking statements throughout the which means of the Personal Securities Litigation Reform Act of 1995. All such forward-looking statements are meant to be topic to the protected harbor safety offered by the Reform Act.
Precise outcomes and outcomes might differ materially from these forecast as a result of impression of many elements past the management of AGNC. All forward-looking statements included on this presentation are made solely as of the date of this presentation and are topic to vary with out discover. Sure elements that would trigger precise outcomes to vary materially from these contained within the forward-looking statements are included in AGNC’s periodic stories filed with the Securities and Change Fee. Copies can be found on the SEC’s web site at sec.gov.
We disclaim any obligation to replace our forward-looking statements until required by legislation. Members on this name embrace, Peter Federico, director, president and chief govt officer; Bernie Bell, govt vp and chief monetary officer; Chris Kuehl, govt vp and chief funding officer; Aaron Pas, senior vp, non-Company portfolio administration; and Sean Reid, govt vp, technique and company growth. With that, I flip the decision over to Peter Federico.
Peter J. Federico — President and Chief Working Officer
Good morning, everybody, and thanks for becoming a member of our name. The favorable funding themes that emerged in 2024 proceed to assist our constructive outlook for company mortgage-backed securities. Final 12 months, the Fed shifted its restrictive financial coverage stance and commenced the method of returning short-term charges to a impartial degree. Declining inflationary pressures and accommodative financial coverage precipitated rate of interest volatility to ease and the yield curve to steepen after being inverted for greater than two years.
As we start 2025, the provision and demand outlook for Company MBS seems to be effectively balanced. As well as, and most necessary to our enterprise, we anticipate Company spreads to benchmark charges to stay in the identical well-defined buying and selling vary, thus offering levered and unlevered traders very engaging return alternatives. Towards this improved funding backdrop, AGNC generated a constructive financial return of 13.2% into 2024, pushed by our compelling month-to-month dividend. Our efficiency final 12 months demonstrates AGNC’s means to generate sturdy funding returns in environments the place spreads are large and secure.
Since September, the Fed lowered short-term charges by 100 foundation factors because it recalibrated financial coverage. Whereas the trail of financial coverage continues to maneuver towards a impartial degree, sturdy financial information late within the quarter prolonged the timeline as evidenced by the Fed’s December Abstract of Financial Projections, which confirmed fewer charge cuts in 2025 and 2026 relative to the September launch. The U.S. presidential election additionally raised issues about fiscal coverage, deficit spending and the magnitude of future treasury issuance.
This elevated financial and monetary coverage uncertainty, overshadowed the constructive funding sentiment that characterised the primary three quarters of the 12 months. Collectively, the sharp improve in rates of interest and modestly wider Company spreads drove our barely destructive financial return for the fourth quarter. As we start 2025, our outlook for Company mortgage-backed securities continues to be very favorable. Regardless of vital financial coverage easing, longer-term rates of interest have elevated meaningfully, and the 30-year major mortgage charge is as soon as once more near 7%.
At this charge degree, the provision of Company MBS this 12 months needs to be much like what we skilled final 12 months and fairly effectively aligned with investor demand. Better financial institution demand can also be doable, given the like of much less onerous regulation. Lastly, Company mortgage-backed securities supply traders distinctive diversification advantages and a gorgeous return profile, however are troublesome for a lot of traders to entry. AGNC’s frequent inventory offers traders a simple approach to make investments on this distinctive mounted revenue asset class on a levered and hedged foundation, which is in any other case solely obtainable to institutional traders with subtle buying and selling desks.
So in abstract, the present financial coverage stance of the Fed offers a constructive underlying funding basis for high-quality mounted revenue devices, like Company mortgage-backed securities, notably at present valuation ranges. The availability and demand outlook for Company MBS seems to be effectively balanced with upside demand doable. And eventually, we anticipate Company spreads to stay of their present engaging buying and selling vary. Collectively, these constructive dynamics create a good funding backdrop for AGNC in 2025.
With that, I will now flip the decision over to Bernie Bell to debate our monetary leads to better element.
Bernice E. Bell — Government Vice President, Chief Monetary Officer
Thanks, Peter. For the fourth quarter, AGNC had a complete lack of $0.11 per frequent share. Financial return on tangible frequent fairness was destructive 0.6% for the quarter, comprised of $0.36 of dividends declared per frequent share and a $0.41 decline in our tangible internet guide worth per share ensuing from greater rates of interest and modestly wider spreads for the 12 months. As Peter talked about, our full 12 months financial return was a constructive 13.2%, pushed by our month-to-month dividend totaling $1.44 per frequent share and a $0.29 decline in tangible internet guide worth per share.
As of late final week, our tangible internet guide worth per frequent share was up about 1% for January, are largely unchanged after deducting our month-to-month dividend accrual. Within the fourth quarter, we opportunistically raised $511 million of frequent inventory via our at-the-market providing program at a substantial premium to tangible internet guide worth. This introduced our complete issuance of accretive frequent fairness for the 12 months to roughly $2 billion, delivering significant guide worth accretion to our frequent stockholders. Our common and ending leverage for the fourth quarter was unchanged at 7.2 tmes tangible fairness in comparison with the third quarter.
Moreover, we concluded the quarter with unencumbered money and Company MBS of $6.1 billion or 66% of our tangible fairness. The typical projected life CPR for our portfolio at quarter finish decreased 7.7% from 13.2% on the finish of the third quarter, in line with greater rates of interest. Precise CPRs for the quarter averaged 9.6%, up from 7.3% within the third quarter. Lastly, internet unfold and greenback roll revenue declined by $0.06 to $0.37 per frequent share within the fourth quarter resulting from a 30 foundation level narrowing of our internet rate of interest unfold to simply above 190 foundation factors.
The decline in our internet unfold, revenue and internet curiosity margin was pushed by a barely greater pay charge on our rate of interest swap portfolio, timing variations between the obtain charge on our rate of interest swaps and our repo price, and lastly, our shift towards a better proportion of treasury-based hedges, which aren’t included in our reported internet curiosity unfold or internet unfold revenue. To reinforce transparency, we’ve included further particulars on our treasury place and related carry element in our investor presentation and earnings launch. We estimate that the stick with it treasury hedges was $0.04 per share for the fourth quarter. And with that, I will now flip the decision over to Chris Kuehl to debate the Company mortgage market.
Christopher Jon Kuehl — Government Vice President, Company Portfolio Investments
Thanks, Bernie. The mounted revenue funding panorama in 2024 was formed by financial information and evolving Fed coverage expectations resulting in vital rate of interest volatility. The fourth quarter was no exception, with sturdy financial information resulting in renewed hawkish rhetoric from the Fed and the paring again of future charge cuts for market pricing. This evolving financial coverage outlook, mixed with the overall risk-off sentiment forward of the presidential election precipitated Company MBS to underperform swap and treasury hedges, notably within the month of October.
Following the election, nevertheless, MBS spreads recovered considerably, with a 30-year par coupon unfold to a mix of 5- and 10-year treasury hedges, ending the quarter 6 foundation factors wider. Efficiency throughout the coupon stack was combined with greater coupon MBS performing the very best, whereas 4 and a half in decrease coupons usually skilled the best underperformance. In the course of the fourth quarter, we added roughly $2 billion in Company MBS. And consequently, our funding portfolio totaled $73.3 billion as of December 31.
Our asset progress was concentrated later within the quarter at engaging spreads, and we have continued so as to add to the funding portfolio within the month of January. When it comes to portfolio composition, we continued to maneuver up in coupon, decreasing holdings in 4 and a half in decrease coupons by roughly $6 billion whereas including roughly $8 billion and 5% and better coupons. As has been the case for a number of quarters now, our TBA place consisted primarily of Ginnie Mae TBAs as valuations and roll implied financing much less remained engaging. Our non-Company securities portfolio ended the quarter at $884 million, down barely from the earlier quarter, with the composition of our holdings principally unchanged.
Given the significant back-up in rates of interest, related asset length extension and portfolio progress, we added near $12 billion in long term, principally treasury-based hedges throughout the quarter. Because of this, our hedge ratio to funding liabilities elevated materially to 91%, and treasury-based hedges as a proportion of our hedge portfolio represented 53% on a greenback length foundation as of quarter finish. Nonetheless, with longer-term treasury charges and swap spreads starting to point out indicators of stabilization, our allocation to swap-based hedges will probably improve over the approaching quarters. I will now flip the decision again over to Peter.
Peter J. Federico — President and Chief Working Officer
Thanks, Chris. Earlier than opening the decision as much as your questions, I need to take a second to debate the U.S. housing finance system and the standing of the GSEs. The result of the presidential election has clearly reignited the market’s curiosity within the GSE conservatorships and the character of the federal government’s involvement within the housing finance system.
Numerous proposals and opinion items lately have advocated for varied outcomes starting from ending the GSE conservatorships to sustaining established order. Importantly, there additionally seems to be a rising consensus that any change needs to be achieved in a method that preserves the present performance of the standard mortgage market, avoids disrupting the home actual property market and ensures housing affordability doesn’t decline additional. To that finish, some key policymakers have already signaled the need to pursue any change in a cautious, deliberate and clear method. The $7.5 trillion Company mortgage-backed safety market is the cornerstone of this nation’s $14 trillion housing finance system, a system that’s the envy of the world by offering the uninterrupted availability of the 30-year prepayable mortgage at uniform charges throughout the nation and all through market cycles.
The scale of the Company market, the liquidity and financeability of those devices, their use as a financial coverage software and the existence of the TBA market and the necessary position it performs for mortgage originators and servicers all exist as we speak due to the federal government’s ongoing involvement, and due to the motion of the federal government and the Fed have taken throughout occasions of stress. Furthermore, the Company mortgage-backed securities market is crucial to facilitating homeownership, reaching the various societal advantages that accompany it and doing so in a fashion that’s honest and equitable. Preserving these attributes and avoiding a disruptive consequence for the housing finance system, we consider, requires the continuing involvement of the U.S. authorities.
Altering the construction of the GSEs rapidly and with out considerate consideration of the various complexities and interconnectedness of the present system could be unnecessarily disruptive and really dangerous to housing affordability. That stated, change achieved in a method that preserves the various extremely fascinating features of the present system offers readability relating to the type of the federal government’s ongoing involvement, and which is finished in a method that protects taxpayer curiosity, could possibly be a really constructive growth for the Company mortgage-backed safety market. With that, we’ll now open the decision as much as your questions.
Questions & Solutions:
Operator
[Operator instructions] And as we speak’s first query comes from Bose George with KBW. Please go forward.
Bose George — Analyst
Hey, everybody. Good morning. Truly, I needed to ask first about fairness issuance. Are you able to simply speak concerning the potential magnitude of fairness issuance this 12 months if spreads are comparable, your guide worth premium stays the best way it’s? And simply ideas on, is there a degree of stability sheet the place it will get too large? Or do you will have — simply conceptually the way you’re occupied with that?
Peter J. Federico — President and Chief Working Officer
Certain. I admire the query, Bose. As you already know, we had been lively utilizing our ATM this final quarter, and I will begin with speaking concerning the strategy this final quarter and the way it was a little bit bit totally different than a few of our earlier quarters as a result of I feel it is informative to your query. On this final quarter, for instance, the chance, the attractiveness of the fairness issuance was extra pronounced early within the quarter, whereas mortgages had been extra engaging later within the quarter.
I level that out as a result of it differs a little bit bit from the earlier quarters the place we had been very lively in elevating capital and deploying these proceeds nearly concurrently. This quarter, we took a extra opportunistic strategy in that the capital raises had been achieved early within the quarter. And as Chris talked about, a few of our capital deployment was at extra gradual tempo later within the quarter. It was one of many explanation why there was a little bit little bit of a destructive impression from a internet unfold and greenback roll revenue.
However we’ll proceed to strategy the capital issuance and our capital administration from the attitude of doing it opportunistically. Clearly, we have a look at the accretion profit and guide worth profit. For those who look again over the course of the 12 months, it was — all of our capital raises actually had been vital contributors to guide worth for our current shareholders. And deploying these proceeds as you say, on this market is absolutely engaging.
You have a look at the place mortgage spreads are as we speak, starting from 150 to 170 foundation factors relying on hedge combine and so forth, you are speaking about engaging ROEs, notably now that we have gone via among the uncertainty of the fourth quarter. The final level I will make is that clearly from — when you have a look at AGNC’s scale as we speak, we’re actually snug with our scale and working effectivity, actually pleased with that. Our working prices are, I feel, the bottom within the trade. I anticipate them to stay in that 1% to 1.25% vary.
The liquidity of our inventory is excellent and provides shareholders nice alternative to enter our area in a really liquid, straightforward method. So there is no must develop for the sake of rising, I assume, that is my last level. We’ll achieve this once we consider that it’s in the advantage of our current shareholders and strategy that exercise all through the stay — all through this 12 months, identical to we do each different 12 months and achieve this very opportunistically. I will pause there.
Bose George — Analyst
Nice. That is useful. After which, simply are you able to assist stroll via the ROE math whenever you fund with treasury futures versus swaps as a result of the — clearly, nominal spreads are decrease, so form of the variables that undergo one versus the opposite.
Peter J. Federico — President and Chief Working Officer
Sure. And that is a great level, and I will contact on a whole lot of factors. In actual fact, one of many points that I feel our earnings measures have simply usually our internet unfold and greenback roll revenue and one of many explanation why we — we do not need traders to take a look at that as a driver of our dividend coverage as a result of it’s not. We have a look at the economics of our portfolio from a dividend perspective.
It is a reflection of present interval earnings, not the long-run earnings of our portfolio. So we have a look at the alignment of the mark-to-market, if you’ll, of our portfolio versus that. After which, in fact, internet unfold and greenback roll revenue as we outline it, and I feel most outline it, solely consists of your swap-based hedges. We tried so as to add some disclosure to our presentation this quarter to offer traders a little bit little bit of a greater understanding of the identical kind of comparable carry traits that happen with treasuries that happen with swaps.
Within the treasury market, whenever you use a treasury hedge, you are shorting a treasury after which there is a obtain, if you’ll, in your repo transaction. So it has the identical idea as a pay and a obtain. We added some disclosure to offer traders a greater understanding of that carry. In order that’s one level.
The purpose No. 2 is that to the extent that we use extra treasury-based hedges, there’s much less carry, much less unfold, if you’ll, between treasury-based hedges and mortgages due to the place swap spreads are as we speak. And Chris talked concerning the reality our treasury-based hedges are at actually a excessive level. I feel it is 55% of our hedges had been treasury-based hedges within the fourth quarter.
That’s not typical, however we did that as a result of treasury-based hedges gave us a greater market worth offset to our asset portfolio as a result of swap spreads have tightened so dramatically during the last 12 months. 10-year swap spreads, for instance, within the fourth quarter bought to greater than destructive 50 foundation factors. So a historic low. So treasury-based hedges had been higher from a market worth perspective.
To the extent that swap spreads start to stabilize, and Chris talked about that phrase that we’re beginning to see that stabilization, it would make sense for us to rotate into swap-based hedges again to possibly towards our regular degree, which could be within the 70% to 80% vary. And in doing that, we’ll find yourself choosing up further carry so long as swap spreads keep secure. So I feel that is the best way to consider it. After I speak about spreads as we speak on common, and I have a look at treasury — present coupon, for instance, to treasury hedges, I’d say they’re probably within the 130 to 150 vary and present coupon — or to swap-based hedges, I’d probably say that they are going to stay within the kind of the 160, 180 vary.
In order we shift, that may change that weight between these two and drive what our anticipated ROE is on a go-forward foundation. So I gave you a long-winded reply there, however I assumed these factors had been necessary.
Bose George — Analyst
Nice. That is useful. Thanks.
Peter J. Federico — President and Chief Working Officer
OK.
Operator
Thanks. And our subsequent query as we speak comes from Doug Harter with UBS. Please go forward.
Peter J. Federico — President and Chief Working Officer
Good morning, Doug.
Douglas Harter — Analyst
Good morning, Peter. I hoped you can speak about your dividend outlook. I do know you simply talked about that you do not view EAD as consultant, however form of the way you’re seeing the economics of the mark-to-market returns and the way that compares to type of the present dividend degree?
Peter J. Federico — President and Chief Working Officer
Certain. Properly, the very first thing we have a look at from a dividend perspective is what’s the complete price of capital hurdle charge, if you’ll, versus our anticipated return at present valuation ranges of the portfolio. When you concentrate on the entire price of capital, I feel that is actually crucial as you concentrate on what’s the price to run our enterprise to pay our frequent dividends, to pay our most popular inventory dividends and our working bills. Because the numerator in that equation, the denominator is our complete capital base, which is about $9.2 billion.
For those who have a look at our precise bills within the fourth quarter and annualize these versus our capital base, it will let you know that our hurdle charge is round 16.5%, possibly 16.7% to be exact. And the query is what will we examine that to? And the related comparability is what’s our anticipated, if you’ll, gross ROE at present valuation ranges, utilizing a mixture of spreads as a result of they’re clearly all the time altering as a single level as a substitute. However I exploit a blended — a ramification that could be a mix between treasury-based hedges and swap-based hedges. I will provide you with three deadlines, 150 foundation factors, 160 foundation factors and 170 foundation factors.
They kind of have the vary of these are spreads that I feel are indicative of as we speak’s valuations, and people would translate to gross ROEs of someplace between 17% and 18.5%. So stated one other method, if we had been to deploy capital as we speak, we’d anticipate to earn spreads in that vary or ROEs on a go-forward foundation of someplace between 17% and 18.5%. And that aligns very effectively with our complete price of capital, and that is one of many explanation why in it that method, we have been capable of preserve our present dividend for, I feel we’re occurring about 58 months. In order that’s the best way we have a look at it, and I feel it is nonetheless effectively aligned at as we speak’s valuations.
Douglas Harter — Analyst
Recognize that. And simply curious how you concentrate on volatility and the price of volatility in form of in that equation that you simply simply walked via?
Peter J. Federico — President and Chief Working Officer
Sure. There is no doubt, and that is a degree. That is for certain that clearly, rate of interest volatility is a giant driver of how your ex-ante returns will convert to ex-post returns. So will we’ve to spend some huge cash rebalancing? Or will we’ve to spend much less cash? It is one of many key drivers of, for instance, our outlook for this 12 months.
I feel rate of interest volatility now that the 10-year has backed up — and that is necessary that the 10-year has gotten again into a brand new buying and selling vary of, as an instance, between 4.25% and 5%, it seems that rate of interest volatility ought to stay comparatively low going ahead, given we have gotten via all the quantitative tightening and the dramatic shifts from the Fed. We have now stabilization. We have now a extra accommodative Fed. We have now a path for short-term charges that appears to be pretty effectively telegraphed.
These issues ought to contribute to decrease volatility going ahead, no less than that is our outlook proper now, which ought to then translate to decrease hedge prices on a go-forward state, however market circumstances clearly change. One different level that I’d make there’s that our means to boost capital — that is form of a great tie again to the primary query, our means to boost capital at accretive degree can also be a possible driver of ex-post returns, which might offset a few of that incremental hedge price that we’d happen over time with hedging. However you are 100% proper. It will be — it may be a drag.
It is simply an order of magnitude. And proper now, the outlook is, I feel, fairly favorable for that.
Douglas Harter — Analyst
Nice. I admire all these solutions, Peter. Thanks.
Peter J. Federico — President and Chief Working Officer
Certain.
Operator
Thanks. And our subsequent query as we speak comes from Crispin Love with Piper Sandler. Please go forward.
Crispin Love — Piper Sandler — Analyst
Thanks. Good morning, everybody. Simply first on the hedge ratio and hedges persevering with the current dialog, however you decreased the hedge ratio meaningfully within the third quarter, however elevated it to 91% within the fourth quarter. So one, simply curious, whenever you added extra hedges within the quarter.
Was it main as much as the election? After which, simply ideas and views on the hedge ratio as we speak and outlook going into — form of persevering with via 2025, additionally along with your view of decrease vol anticipated?
Peter J. Federico — President and Chief Working Officer
Sure. Thanks for the query. We did improve it clearly, pretty considerably again to 91% from 72%. But it surely goes again to the query that I simply answered as a place to begin, which is that we clearly anticipated extra rate of interest volatility as we went into the presidential election.
And clearly, there was a whole lot of uncertainty and nonetheless is about fiscal coverage and tariffs and what which may imply for financial coverage and what which may imply for treasury issuance. However we had an 80 foundation level transfer greater within the 10-year treasury within the fourth quarter. And the rationale why we had been so lively in rebalancing and saved our length hole primarily unchanged quarter over quarter, 0.2 to 0.3. And that is not all the time the case with respect to our delta hedging and our rebalancing.
However we had been so lively in doing so this quarter is as a result of we did not anticipate charges to whipsaw again the opposite method. From our perspective proper now, the backup in charges and notably within the 10-year, transferring as much as the 4.5% to 4.75% vary seems to be kind of a greater valuation for that a part of the curve given all the uncertainty concerning the energy of the financial system and potential sources of inflation or deflation as it might be. However we felt like being lively in delta hedging was actually necessary as a result of we do not anticipate charges to drop materially from right here. We anticipate long-term charges to stay secure.
So due to this fact, we did add a whole lot of hedges, and we did so notably by including principally, in actual fact, nearly solely treasury-based hedges due to our uncertainty about what swap spreads would do throughout the quarter. So over time, we might rotate out of these. As Chris indicated, that may probably be the case. However that is why we had been so lively in rebalancing and conserving our length hole low as a result of we did not need — we did not anticipate charges to whipsaw again.
Crispin Love — Piper Sandler — Analyst
Nice. Recognize that. After which, only one final query for me. Simply an replace on Company MBS demand as you see it as we speak, banks, cash managers, simply ideas on demand on this atmosphere.
Peter J. Federico — President and Chief Working Officer
Sure. I discussed in my ready remarks, the outlook for provide, and I feel that is actually a constructive for the mortgage market. When you concentrate on the outlook and why we’re so constructive, it begins with the technicals for mortgages. And the technical is that the provision of mortgages in 2025 needs to be very comparable, I might anticipate to 2024.
In 2024, the entire provide was only a contact over $210 billion, which got here in decrease or definitely on the low finish of everyone’s expectations. And with — and this goes again to the purpose concerning the 10-year being at 4.5% or greater. The ten-year being at 4.5% or greater has pushed the 30-year major mortgage charge again up near 7%, which implies the provision of mortgages as we begin this 12 months is probably going going to stay on the low finish of individuals’s expectations. So I anticipate the provision of mortgages — and I feel when you have a look at most sellers, it is within the $200 billion to $250 billion vary, which is a constructive growth.
After which, you have a look at what are the sources of demand. Final 12 months, I feel cash managers — I feel there was complete inflows into bond fund of round $450 billion, of which possibly 20% of that or so goes into the mortgage market. It seems that that could possibly be once more the case in 2025. So I’d anticipate cash managers, if bond fund flows keep excessive, — and definitely, yesterday, you noticed rotation into bonds with fairness weak spot.
That might clearly be the case. Cash managers might demand $50 billion to $80 billion value of mortgages once more. After which, in fact, the uncertainty or the unknown within the equation is financial institution demand. And financial institution demand has been secure and slowly rising.
Actually, financial institution — complete financial institution holdings of mortgages have elevated steadily off the low level of September ’23 and now have kind of grown steadily in 2024. There’s a risk with financial institution regulation being maybe much less onerous that they could are available and be an even bigger purchaser in 2025 versus 2024. We do not clearly know that but, however that is one thing we’ll control. So I feel ultimately, whenever you put that collectively, I feel the provision and demand appears to be pretty effectively balanced, and that is an necessary driver of our outlook.
Any comply with up there?
Operator
Thanks. I will transfer on to our subsequent query. Our subsequent query comes from Trevor Cranston of Residents JMP. Please go forward.
Trevor Cranston — Analyst
Hey. Thanks. Good morning. You guys talked about that you’ve got been including towards the top of the quarter and have continued into January.
Assuming that the portfolio additions are growing leverage, are you able to speak a little bit bit about form of what your present leverage goal could be? What the funding alternatives — the place they’re as we speak? And a part of that, additionally as you are including, when you can possibly speak a little bit bit about when you’ve seen any kind of modifications in your relative worth views of TBAs versus spec swimming pools?
Peter J. Federico — President and Chief Working Officer
Certain. I will begin with the primary half, after which Chris can speak about TBA versus swimming pools and different relative worth. So first, whenever you have a look at our leverage, it has been pretty constant, in actual fact, very constant during the last 12 months within the 7.2, 7.3 vary. And the excellent news there’s we had been capable of generate actually engaging returns with that kind of leverage degree.
And with leverage at that degree, we clearly nonetheless have an enormous quantity of our capital and unencumbered. As Bernie talked about, 66% of our capital is unencumbered. So we’ve a extremely sturdy place from a danger administration perspective. And once we take into consideration leverage, clearly, there’s a whole lot of drivers.
One, we wish clearly, mortgage spreads to be engaging, which they’re. We would like rate of interest volatility to be secure or declining, which we expect it might be, which is a constructive. After which, we’ll simply make that call kind of on a case-by-case foundation. However I feel one of many key factors is when you concentrate on spreads, not solely do they should be engaging, we wish them to be secure.
And one of many issues that I feel materialized in 2024 is the truth that mortgage spreads stayed very — traded in actually a comparatively tight vary, notably when you have a look at like present coupon to five- and 10-year treasuries, they traded in an exceedingly tight vary. 80% of the 12 months final 12 months, mortgages traded in a 20 foundation level vary between 135 and 155 foundation factors. That is nice for our enterprise. We would like unfold volatility to be low.
We would like spreads to be engaging. If these circumstances proceed, it will make us positively inclined concerning the market and our danger place. So once more, I am not going to offer a forecast on that, however these are the circumstances that we have a look at for taking danger a little bit greater. And Chris can speak about the place we have been deploying proceeds.
As he talked about, we began so as to add some mortgages in January.
Christopher Jon Kuehl — Government Vice President, Company Portfolio Investments
Certain. So throughout the quarter, we continued to shift our holdings to greater coupons. As I discussed, we lowered holdings in 4 and a half and decrease coupons by about $6 billion, added slightly below $8 billion and 5% in greater coupons. Manufacturing coupon valuations nonetheless supply among the finest longer-run risk-adjusted returns.
And whereas greater coupons carried out very effectively final 12 months, the overwhelming majority of that return was carry, not unfold tightening. And so, spreads are nonetheless very engaging. And so, that is the place we have been allocating marginal capital. The relative worth image throughout the coupon stack might definitely shift this 12 months if banks are extra concerned and issuance stays mild given the place mortgage charges at present are.
However once more, given present unfold relationships with respect to the coupon stack, marginal capital goes to principally be deployed in greater coupons. With respect to TBAs versus specified swimming pools, specs usually have carried out very effectively. They did within the fourth quarter. And whereas we did have some alternatives so as to add greater high quality swimming pools at good ranges, there are some newer manufacturing classes which might be buying and selling at comparatively full valuations.
And so, we’re content material to be affected person there and carry a bit greater TBA place with prepayment danger low and roll beginning to commerce higher.
Trevor Cranston — Analyst
Obtained it. OK. That is useful. Thanks.
Peter J. Federico — President and Chief Working Officer
Certain.
Operator
And our subsequent query as we speak comes from Eric Hagen of BTIG. Please go forward.
Peter J. Federico — President and Chief Working Officer
Good morning, Eric.
Eric Hagen — Analyst
Hey. Thanks. Good morning, guys. If we tease aside the projection for prepayment speeds, are you able to possibly share roughly what mortgage charge you had been assuming in that projection and the way you may — and the way it’s possibly modified within the begin of the 12 months? After which, the way you may examine or characterize the reinvestment danger that you simply face with prepays and spreads at these ranges versus when speeds have been quicker?
Christopher Jon Kuehl — Government Vice President, Company Portfolio Investments
Sure. So our CPR projections are merely primarily based on the spot — the ahead curve as of the top of the 12 months. Simply extra usually talking, with respect to prepayment danger, I might say the fourth quarter was most likely essentially the most attention-grabbing set of stories that we have had since COVID, October and November, particularly. Mortgage charges approached — mainly hit 6% in September.
We had a fairly sizable portion of the float and better coupons that had an incentive to refinance and speeds had been very quick in October and exceeded most mannequin expectations. However with the sharp sell-off in charges, November speeds then got here in materially slower, below most mannequin expectations. And so, it is probably October speeds had been impacted by very excessive pull-through charges. However I might say even nonetheless net-net, whenever you have a look at the 2 months collectively, the response was the steepest we have had actually since COVID.
And so, right into a sustained rally, we’re definitely not betting on a benign prepayment response. It is clear lenders are going to be very aggressive soliciting straightforward to refi debtors. However once more, prepayment danger could be very manageable via asset choice and diversification. And asset choice doesn’t suggest simply proudly owning the best high quality swimming pools with essentially the most prepayment safety.
In actual fact, it typically would not, relying on the place pay-ups are valued. It’s totally impactful to simply keep away from the worst swimming pools are the quickest collateral. And so, once more, lively administration is essential throughout varied charge situations.
Eric Hagen — Analyst
Nice coloration there. I admire that. All proper. So possibly constructing off the outlook from the query round banks.
I imply, how do you see the impression of financial institution regulation possibly driving financial institution urge for food as repo counterparties, each to AGNC and to the market extra broadly? I imply, do you will have any views on the provision of repo going ahead? And actually simply any impression that would transmit on to mortgage spreads on the similar time?
Peter J. Federico — President and Chief Working Officer
Sure. So first, on the financial institution facet, once more, financial institution balances have been rising, which is a vital reality. Two, it seems that banks — once they do add, they seem like including in an available-for-sale capability as opposed and hedging extra that is simply anecdotal versus the held-to-maturity. In order that’s clearly, I feel, a great signal for his or her means so as to add mortgages and achieve this on a hedge foundation and handle their rate of interest danger.
After which, clearly, from the place we had been, as an instance, I assume, it was most likely in the course of the 12 months when the Basel finish recreation was so unsure and there was numerous unintended penalties in a few of these earlier variations of that regulation to the place we are actually, it seems that financial institution regulation goes to be definitely much less onerous and possibly even quiet for a time frame, which I feel bodes effectively for financial institution demand. So clearly, we haven’t any different perception into it than that, however it does appear from a directional perspective that it could possibly be bigger versus smaller. With respect to the repo market, because the Fed drains balances — financial institution reserve balances out of the system, which they’re doing now, there’ll come a time, and I anticipate it to be this 12 months the place they will cease as a result of I feel whenever you have a look at the place financial institution reserves are actually at about $3.2 trillion, I feel they’re stepping into the vary of the place financial institution reserves from a goal perspective relative to GDP, someplace within the 10% to 11% vary is among the steering that the Fed has talked about, not that they’re managing to that, however it’s definitely a sign. It seems that financial institution reserves are stepping into the goal vary the place they’ve moved from ample to ample.
And that is what the Fed is in search of. And the Fed is seeking to the repo marketplace for indications of that — and we’re seeing indications of that, which means that the repo market is now at interval ends and reporting durations displaying among the volatility that you’d see usually when financial institution reserves get to that much less ample degree. We noticed the repo spreads to SOFR over year-end being within the 50 to 100 foundation level vary. We noticed it within the third quarter, we noticed it previous to that.
So reporting durations may have some volatility. It will likely be a little bit bit greater price. It is one of many issues that contributed to our greater price relative to our swap guide going ahead. The Fed is clearly watching this very intently, prepared to and have already made modifications, which is necessary modifications to the best way they run their applications to handle this fastidiously.
The Fed doesn’t need the funding markets to be disrupted. And I do not anticipate any limitation from a repo perspective to get to the precise reply that you simply’re speaking about. There’s loads of repo capability for company mortgage-backed securities. Sure, it might be a couple of foundation factors extra price, notably over reporting durations, however it’s a price query, not a capability query.
So I do not anticipate that to be a limiting issue for demand in any respect.
Eric Hagen — Analyst
Nice stuff. I admire the reply. Thanks guys.
Peter J. Federico — President and Chief Working Officer
Certain. Thanks.
Operator
Thanks. And our subsequent query as we speak comes from Jason Stewart at Janney. Please go forward.
Peter J. Federico — President and Chief Working Officer
Good morning.
Jason Stewart — Janney Montgomery Scott — Analyst
Good morning, Peter. Thanks for the colour on earnings. That does good stroll via. Bernie, simply I missed the purpose on futures and what that might have added if it was in that unfold and greenback roll revenue on a comparable foundation to the quarter.
Peter J. Federico — President and Chief Working Officer
Sure. Bernie talked about that — I feel your query was about treasuries. Is that right? I did not hear. Sure.
Bernie talked about that this final quarter, and we added a web page in some disclosure in our again of our presentation, I overlook what web page it’s precisely.
Bernice E. Bell — Government Vice President, Chief Monetary Officer
It is on Web page 24.
Peter J. Federico — President and Chief Working Officer
On Web page 24, that reveals you the kind of the pay facet of the equation, what we’re paying and the place our repo charges had been. And when you have a look at that, we concluded that it was most likely round $0.04 of earnings that if we had — if internet unfold and greenback roll revenue included that, it will be one thing like about $0.04. Clearly, as a result of one of many challenges with that measure is as a result of we use futures, that carry element must be kind of imputed, if you’ll. So we needed to give you a strategy that is one of many shortcomings of it.
However nonetheless, to offer you an order of magnitude, we expect it is in that vary of round $0.04 this final quarter.
Jason Stewart — Janney Montgomery Scott — Analyst
Obtained it. After which, had been you capable of quantify the impression of the ATM timing, so issuing early and deploying later within the quarter?
Peter J. Federico — President and Chief Working Officer
Properly, what I’d say is whenever you have a look at the impression of the issuance, I feel you are able to do it in plenty of other ways. You may have a look at our common value — and the common value, which means $500 million value of inventory versus $53 million would provide you with a median value of $9.60 simply on that calculation. And also you have a look at that relative to our starting and ending guide worth, you may conclude that it was a considerable quantity of accretion. You may additionally have a look at our complete revenue and our dividend and conclude primarily based on our guide worth that it most likely contributed one thing within the neighborhood of $0.06 or so of guide worth, possibly a little bit bit extra.
After which, as Chris talked about, there was clearly a whole lot of volatility and uncertainty early within the quarter. So elevating capital at an accretive degree after which deploying it extra progressively later within the quarter, we clearly noticed mortgage spreads widen throughout the quarter. They peaked round mid-quarter and now are nonetheless ended the quarter wider than they had been initially. So by deploying these proceeds at a slower tempo gave us the capability to speculate, as Chris talked about, at engaging ranges late within the quarter and nonetheless at engaging ranges this quarter.
Jason Stewart — Janney Montgomery Scott — Analyst
OK. All proper. We’ll make some assumptions on how that impacted earnings. I admire it, Peter.
Peter J. Federico — President and Chief Working Officer
Certain.
Operator
Thanks. And our last query as we speak comes from Harsh Hemnani with Inexperienced Avenue. Please go forward.
Harsh Hemnani — Inexperienced Avenue Advisors — Analyst
Thanks.
Peter J. Federico — President and Chief Working Officer
Good morning, Harsh.
Harsh Hemnani — Inexperienced Avenue Advisors — Analyst
Good morning. You talked about that your base case for spreads is that they continue to be throughout the buying and selling vary that they’ve been in for a while. What in your thoughts are the dangers to that base case that would drive spreads both greater out of your — exterior that buying and selling vary or decrease?
Peter J. Federico — President and Chief Working Officer
Properly, sure, you are proper. And so they have been remarkably secure. And I feel we’re occurring about seven quarters possibly of this buying and selling vary, which I discover to be actually encouraging. I feel mortgages are — given a little bit little bit of a backup, mortgages in the course of the vary, clearly feels a little bit bit higher to us than being on the tight finish of the vary.
However I’d say that there is most likely two major dangers. One is — pertains to financial coverage and rates of interest typically. If the rates of interest turn into extraordinarily unstable, which means if rates of interest had been to maneuver materially greater than we anticipate or materially decrease than we anticipate. Chris talked about it might set off refinance exercise in the event that they had been to rally for some unexpected purpose or we might have rates of interest again up due to, for instance, issues about deficit spending and treasury issuance.
These might put stress on mounted revenue broadly, they usually might put stress on mortgage spreads. So that might be one. After which, clearly, all the dialogue, that is why I included the — in my ready remarks, the additional dialogue about housing coverage, if you’ll, clearly, there’s extra curiosity within the GSEs and the GSEs conservatorship as we speak than there was previous to the Trump administration. And so, there’s some uncertainty about that consequence.
We consider ultimately that all the nice attributes of the present system, I feel individuals will come collectively and agree that they should be preserved. I do not assume from a political perspective, from a homeownership perspective, from an financial perspective, from a Fed perspective that anyone would conclude that they do not need all of those options that we’ve as we speak. After which, meaning additionally then if you wish to protect these options, given the scale of the market, it is probably that the federal government goes to have to stay concerned. How that is structured to be decided, what they get compensated for that to be decided.
However there could possibly be some uncertainty as individuals have opinions and ideological variations about that that would create some unfold volatility. So spreads could also be a little bit greater than they might in any other case be. They might be a little bit wider than they in any other case could be, might transfer us in that vary to your query. However ultimately, I feel they are going to come again into the vary.
And at this unfold vary, I feel mortgages supply a whole lot of worth. They provide worth when you’re investing in treasury securities they usually supply worth when you’re investing in investment-grade company debt, which isn’t all the time the case. So mortgages to us appear like an incredible asset class and low cost at this valuation.
Christopher Jon Kuehl — Government Vice President, Company Portfolio Investments
I will simply add. I feel Peter lined the — what might shock to the broader facet. The opposite facet of the equation, I feel — look, to the extent that financial institution securities progress is way stronger than anticipated. That is a risk on looser regulatory outlook going ahead.
I imply, abroad exercise might additionally shock to the extent that the Fed and BOJ coverage continues to maneuver in reverse instructions that reduces FX hedging prices for banks in Japan. And so, look, there’s a whole lot of issues which might be unknowns and will shock to the tighter facet as effectively. However once more, our base case is fairly firmly rooted and unchanged to possibly modestly tighter spreads for this 12 months.
Harsh Hemnani — Inexperienced Avenue Advisors — Analyst
Obtained it. Thanks. I will go away it there.
Peter J. Federico — President and Chief Working Officer
Thanks.
Operator
Thanks. And this concludes our question-and-answer session. I might like to show the decision again over to Peter Federico for closing remarks.
Peter J. Federico — President and Chief Working Officer
Once more, I admire everyone collaborating on the decision as we speak. And once more, we’re inspired by the outlook for our underlying asset class and for our enterprise in 2025, and we look ahead to talking to you once more on the finish of subsequent quarter.
Operator
[Operator signoff]
Length: 0 minutes
Name contributors:
Katie Turlington — Investor Relations
Peter J. Federico — President and Chief Working Officer
Bernice E. Bell — Government Vice President, Chief Monetary Officer
Christopher Jon Kuehl — Government Vice President, Company Portfolio Investments
Peter Federico — President and Chief Working Officer
Bose George — Analyst
Douglas Harter — Analyst
Doug Harter — Analyst
Crispin Love — Piper Sandler — Analyst
Trevor Cranston — Analyst
Chris Kuehl — Government Vice President, Company Portfolio Investments
Eric Hagen — Analyst
Jason Stewart — Janney Montgomery Scott — Analyst
Bernie Bell — Government Vice President, Chief Monetary Officer
Harsh Hemnani — Inexperienced Avenue Advisors — Analyst
