AGNC Investment Corp.

Good morning and welcome to the AGNC Investment Corp second quarter 2023 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 2. Please note this event is being recorded. I would now like to turn the conference over to Katie Turlington in Investor Relations. Please go ahead.

Thank you all for joining AGMC Investment Corps' second quarter 2023 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 facts, constitute forward-looking statements within the meaning of the Private Securities 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 AGMC. 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 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, Director, President, and Chief Executive Officer, Bernie Bell, Executive Vice President and Chief Financial Officer, Chris Kuehl, Executive Vice President and Chief Investment Officer, Aaron Pass, Senior Vice President, Non-Agency Portfolio Management, and Sean Reed, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.

Thank you, Katie. Market conditions in the second quarter on balance provided further support for our favorable investment outlook for agency MBS. and made us increasingly confident that we are at the forefront of one of the most compelling investment environments that we have experienced in our 15-year history. Historically attractive asset valuations, strong funding markets, and gradually improving hedging conditions as the Fed ends its monetary policy tightening campaign underpin our favorable return expectations. Macroeconomic factors continue to be the primary driver of agency MBS performance. In the second quarter, debt ceiling uncertainty and the possibility of a government default weighed heavily on agency MBS performance and pushed spreads to the widest level since the great financial crisis. Fixed income markets were also pressured by hawkish Fed minutes and continued strength in the labor market. At current valuation levels, agency MBS look extremely attractive on a standalone basis and provide investors a compelling alternative to U.S. treasuries. At a spread to the 10-year treasury of about 175 basis points, new production agency MBS give investors the ability to earn a 5.5% yield on a security that is backed by the explicit support of the U.S. government. This combination of yield and credit quality makes agency MBS appealing to a wide range of investors on both a levered and unlevered basis. Agency MBS also look compelling relative to investment grade corporate debt, particularly in light of a worsening credit outlook. To illustrate this point, on slide 12 of the presentation, we show the treasury spread differential between current coupon agency MBS and the Bloomberg Investment Grade Corporate Bond Index. From 2010 to 2022, the average spread differential between these two instruments was negative 75 basis points, which is to be expected given the superior credit quality of agency MBS. Recently, however, this longstanding spread relationship has reversed. with current coupon agency MBS now trading at a wider spread to treasuries than this investment grade corporate bond index. At today's spread differential of positive 15 basis points, agency MBS are about 90 basis points cheap to the historical average. Over time, this spread relationship will likely revert to the norm as investors take advantage of this opportunity and move up in credit quality. Also important, the short-term funding markets for agency MBS and U.S. Treasuries remain strong in the second quarter despite debt ceiling concerns. The stability and resiliency of the repo market for these two government-backed securities is due to the actions of the Fed and the now well-established reverse repo and standing repo facilities, which together provide a clear upper and lower bound for short-term repo rates. Following the debt ceiling resolution, the Treasury Department issued a significant amount of short-term debt in an effort to replenish its general account at the Fed. This issuance was readily absorbed and largely offset by a decline in the Fed's reverse repo facility balance. leaving the funding market for agency MBS largely unaffected. Finally, the interest rate environment has begun to show signs of improvement. With the Fed nearing an inflection point in monetary policy and interest rates perhaps having already reached their cyclical high point, fixed income investments are an increasingly attractive asset class. Consistent with this more favorable interest rate outlook, bond funds have continued to experience substantial inflows. Interest rate volatility has also declined from the highs of last year and will undoubtedly decline further once the Fed reaches its desired short-term rate level. Declining interest rate volatility is beneficial to agency MBS valuations and, over time, lowers the cost of interest rate-related rebalancing. Looking back over the last couple years, the U.S. Treasury and agency MBS markets have undergone a dramatic repricing as the Fed transitioned from an ultra-accommodative monetary policy stance to its current restrictive stance. We believe this transition is largely complete and that one of AGNC's most favorable investment environments is now emerging. When an investor buys a share of AGNC stock, they buy into a levered portfolio of agency MBS and hedges that is fully marked to market. At current spread levels, we believe our portfolio can generate mid- to upper-teen returns on a go-forward basis, either through strong earnings if mortgage spreads remain at these elevated levels, or a combination of favorable earnings and net book value appreciation if mortgage spreads tighten somewhat over time. With the macroeconomic and interest rate environment still unsettled, short-term deviations from this promising path are possible. Nevertheless, we remain confident that over the longer term, this investment environment will prove to be one of the best for agency MBS investors. With that, I will now turn the call over to Bernie Bell to discuss our financial results in greater detail.