AGNC Investment Corp.

Good morning and welcome to the AGNC Investment Core second quarter 2021 shareholder call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Katie Weiskarver of Investor Relations. Please go ahead.

Thank you all for joining AGNC Investments Corp's second quarter 2021 earnings call. Before we begin, I'd like to review the Safe Harbor Statement. This conference call and corresponding slide presentation contain statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the private security's Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of AGNC. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the risk factors section of AGMC's periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law. Participants on the call include Peter Federico, President and Chief Executive Officer, Bernie Bell, Senior Vice President and Chief Financial Officer, Chris Kuehl, Executive Vice President and Chief Investment Officer, Aaron Pass, Senior Vice President of Non-Agency Portfolio Management, and Gary Kane, Executive Chair. With that, I'll turn the call over to Peter Federico.

Thanks, Katie, and thank you to everyone on the call today. The positive trends that drove the strong performance of agency MBS in the first quarter largely reversed in the second quarter. MBS spreads to swap and treasury hedges, particularly longer-term hedges, widened meaningfully in May and June as interest rates rallied and the yield curve flattened. This spread widening coincided with a shift in investor sentiment following strong economic data, which in turn pushed the Fed to begin asset tapering discussions. The market now expects the Fed to communicate its plan for asset tapering sometime later this year. In addition, despite the first quarter increase in mortgage rates, prepayment speeds in the second quarter slowed by less than expected. These faster prepayment speeds pressured higher coupon MBS valuations and reversed the significant outperformance that these coupons experienced in the first quarter. Given the shift in sentiment regarding asset tapering and faster than expected prepayment speeds, spreads across the coupon stack widened with lower coupon spreads widening 5 to 10 basis points and higher coupon spreads widening 15 to 20 basis points. As a result, our economic return for the quarter was negative 5.5%. While this result is disappointing, it is also easier to understand when viewed in the context of the first two quarters together. To recap in the first quarter, 10-year treasury rates increased by more than 80 basis points. The yield curve three years to 10 years steepened by more than 60 basis points and swap spreads widened. Against this backdrop, agency MBS performed very well. Moreover, higher coupon MBS meaningfully outperformed as investors priced in more benign prepayment expectations given the recent increase in mortgage rates with our portfolio being well balanced between lower coupon tbas and higher coupon specified pools our economic return in the first quarter was positive 8.2 percent in the second quarter however we experienced a reversal of these conditions specifically Ten-year Treasury rates rallied close to 30 basis points. The yield curve flattened by almost 40 basis points. And longer-term swap spreads tightened. Against this backdrop and given the shift in Fed sentiment following stronger economic data, MBS spreads widened meaningfully. And in contrast to the first quarter, the underperformance was most pronounced in higher coupon MBS. The key takeaway here is that the first two quarters largely offset each other. And more importantly for the year, the results are positive. Through the second quarter, we experienced a 55 basis point increase in 10 year treasury rates and only a modest steepening of the yield curve beyond three years. Over that time period, the performance of lower coupon MBS was largely as expected. with these coupons modestly outperforming hedges. In addition, very attractive TBA financing levels further benefited these positions and provided a positive boost to earnings. Higher coupon MBS, meanwhile, underperformed hedges somewhat year-to-date due to elevated prepayment speeds. Putting the two quarters together, AGNC's year-to-date economic return was positive 2.4%. Importantly, we generated this positive return despite the increase in longer-term interest rates, prepayment speeds remaining stubbornly fast, and the Fed beginning to condition the market for an eventual tapering. The repricing of both Fed and prepayment expectations that occurred in the second quarter is healthy for the agency MBS market. At current valuation levels, the investment backdrop is now more balanced. That said, as the Fed and the market move closer to asset tapering, some further spread widening and volatility is possible. And while this could pressure our book value in the short run, wider spreads are a welcome development over the long run, as they improve the expected return on new investments and enhance the earnings profile of our portfolio. With that, I'll turn the call over to Bernie to review the financial results for the quarter.