AGNC profits name for the duration finishing December 31, 2024.
Symbol supply: The Motley Idiot.
AGNC Funding Corp. (AGNC 0.41%)This autumn 2024 Income CallJan 28, 2025, 8:30 a.m. ET
Contents:
Ready Remarks Questions and Solutions Name Individuals
Ready Remarks:
Operator
Excellent morning, and welcome to the AGNC Funding Corp. fourth quarter 2024 shareholder name. [Operator instructions] Please word as of late’s match is being recorded. I might now like to show the convention over to Katie Turlington in investor members of the family.
Katie Turlington — Investor Members of the family
Thanks focused on becoming a member of AGNC Funding Corp.’s fourth quarter 2024 profits name. Ahead of we commence, I might like to check the protected harbor commentary. This convention name and corresponding slide presentation comprises statements that, to the level they aren’t recitations of historic info, represent forward-looking statements inside the that means of the Personal Securities Litigation Reform Act of 1995. All such forward-looking statements are supposed to be topic to the protected harbor coverage supplied via the Reform Act.
Exact results and effects may just range materially from the ones forecast because of the have an effect on of many elements past the regulate of AGNC. All forward-looking statements integrated on this presentation are made most effective as of the date of this presentation and are topic to switch with out realize. Sure elements that might motive exact effects to range materially from the ones contained within the forward-looking statements are integrated in AGNC’s periodic reviews filed with the Securities and Alternate Fee. Copies are out there at the SEC’s web site at sec.gov.
We disclaim any legal responsibility to replace our forward-looking statements until required via regulation. Individuals in this name come with, Peter Federico, director, president and leader govt officer; Bernie Bell, govt vp and leader monetary officer; Chris Kuehl, govt vp and leader funding officer; Aaron Pas, senior vp, non-Company portfolio control; and Sean Reid, govt vp, technique and company building. With that, I flip the decision over to Peter Federico.
Peter J. Federico — President and Leader Working Officer
Excellent morning, everybody, and thanks for becoming a member of our name. The favorable funding subject matters that emerged in 2024 proceed to beef up our sure outlook for company mortgage-backed securities. Final 12 months, the Fed shifted its restrictive financial coverage stance and started the method of returning temporary charges to a impartial stage. Declining inflationary pressures and accommodative financial coverage led to rate of interest volatility to ease and the yield curve to steepen after being inverted for greater than two years.
As we commence 2025, the availability and insist outlook for Company MBS seems to be effectively balanced. As well as, and maximum essential to our industry, we think Company spreads to benchmark charges to stay in the similar well-defined buying and selling vary, thus offering levered and unlevered buyers very sexy go back alternatives. In contrast stepped forward funding backdrop, AGNC generated a favorable financial go back of 13.2% into 2024, pushed via our compelling per month dividend. Our efficiency final 12 months demonstrates AGNC’s talent to generate sturdy funding returns in environments the place spreads are large and strong.
Since September, the Fed diminished temporary charges via 100 foundation issues because it recalibrated financial coverage. Whilst the trail of financial coverage continues to transport towards a impartial stage, sturdy financial knowledge past due within the quarter prolonged the timeline as evidenced via the Fed’s December Abstract of Financial Projections, which confirmed fewer charge cuts in 2025 and 2026 relative to the September unlock. The U.S. presidential election additionally raised considerations about fiscal coverage, deficit spending and the magnitude of long run treasury issuance.
This increased financial and financial coverage uncertainty, overshadowed the sure funding sentiment that characterised the primary 3 quarters of the 12 months. In combination, the pointy build up in rates of interest and modestly wider Company spreads drove our fairly destructive financial go back for the fourth quarter. As we commence 2025, our outlook for Company mortgage-backed securities remains to be very favorable. Regardless of important financial coverage easing, longer-term rates of interest have higher meaningfully, and the 30-year number one loan charge is as soon as once more with reference to 7%.
At this charge stage, the availability of Company MBS this 12 months must be very similar to what we skilled final 12 months and somewhat effectively aligned with investor call for. Better financial institution call for may be imaginable, given the like of much less exhausting legislation. Finally, Company mortgage-backed securities be offering buyers distinctive diversification advantages and a good looking go back profile, however are tough for plenty of buyers to get right of entry to. AGNC’s not unusual inventory supplies buyers a very simple solution to make investments on this distinctive fastened source of revenue asset elegance on a levered and hedged foundation, which is another way most effective out there to institutional buyers with refined buying and selling desks.
So in abstract, the present financial coverage stance of the Fed supplies a favorable underlying funding basis for high quality fastened source of revenue tools, like Company mortgage-backed securities, specifically at present valuation ranges. The availability and insist outlook for Company MBS seems to be effectively balanced with upside call for imaginable. And in any case, we think Company spreads to stay of their present sexy buying and selling vary. Jointly, those sure dynamics create a positive funding backdrop for AGNC in 2025.
With that, I’m going to now flip the decision over to Bernie Bell to talk about our monetary leads to better element.
Bernice E. Bell — Govt Vice President, Leader Monetary Officer
Thanks, Peter. For the fourth quarter, AGNC had a complete lack of $0.11 in keeping with not unusual percentage. Financial go back on tangible not unusual fairness was once destructive 0.6% for the quarter, created from $0.36 of dividends declared in keeping with not unusual percentage and a $0.41 decline in our tangible web guide worth in keeping with percentage attributable to upper rates of interest and modestly wider spreads for the 12 months. As Peter discussed, our complete 12 months financial go back was once a favorable 13.2%, pushed via our per month dividend totaling $1.44 in keeping with not unusual percentage and a $0.29 decline in tangible web guide worth in keeping with percentage.
Lately final week, our tangible web guide worth in keeping with not unusual percentage was once up about 1% for January, are in large part unchanged after deducting our per month dividend accrual. Within the fourth quarter, we opportunistically raised $511 million of not unusual inventory by way of our at-the-market providing program at a substantial top class to tangible web guide worth. This introduced our general issuance of accretive not unusual fairness for the 12 months to roughly $2 billion, handing over significant guide worth accretion to our not unusual stockholders. Our reasonable and finishing leverage for the fourth quarter was once unchanged at 7.2 tmes tangible fairness in comparison to the 3rd quarter.
Moreover, we concluded the quarter with unencumbered money and Company MBS of $6.1 billion or 66% of our tangible fairness. The common projected existence CPR for our portfolio at quarter finish diminished 7.7% from 13.2% on the finish of the 3rd quarter, in step with upper rates of interest. Exact CPRs for the quarter averaged 9.6%, up from 7.3% within the 3rd quarter. Finally, web unfold and greenback roll source of revenue declined via $0.06 to $0.37 in keeping with not unusual percentage within the fourth quarter because of a 30 foundation level narrowing of our web rate of interest unfold to only above 190 foundation issues.
The decline in our web unfold, source of revenue and web pastime margin was once pushed via a fairly upper pay charge on our rate of interest change portfolio, timing variations between the obtain charge on our rate of interest swaps and our repo price, and finally, our shift towards a better percentage of treasury-based hedges, which aren’t integrated in our reported web pastime unfold or web unfold source of revenue. To make stronger transparency, we now have integrated further main points on our treasury place and related lift element in our investor presentation and profits unlock. We estimate that the lift on treasury hedges was once $0.04 in keeping with percentage for the fourth quarter. And with that, I’m going to now flip the decision over to Chris Kuehl to talk about the Company loan marketplace.
Christopher Jon Kuehl — Govt Vice President, Company Portfolio Investments
Thank you, Bernie. The fastened source of revenue funding panorama in 2024 was once formed via financial knowledge and evolving Fed coverage expectancies resulting in important rate of interest volatility. The fourth quarter was once no exception, with sturdy financial knowledge resulting in renewed hawkish rhetoric from the Fed and the paring again of long run charge cuts for marketplace pricing. This evolving financial coverage outlook, mixed with the overall risk-off sentiment forward of the presidential election led to Company MBS to underperform change and treasury hedges, specifically within the month of October.
Following the election, alternatively, MBS spreads recovered rather, with a 30-year par coupon unfold to a mix of 5- and 10-year treasury hedges, finishing the quarter 6 foundation issues wider. Efficiency around the coupon stack was once blended with upper coupon MBS acting the most productive, whilst 4 and a part in decrease coupons most often skilled the best underperformance. All the way through 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 expansion was once concentrated later within the quarter at sexy spreads, and we have persevered so as to add to the funding portfolio within the month of January. In the case of portfolio composition, we persevered to transport up in coupon, lowering holdings in 4 and a part in decrease coupons via more or less $6 billion whilst including roughly $8 billion and 5% and better coupons. As has been the case for a number of quarters now, our TBA place consisted basically of Ginnie Mae TBAs as valuations and roll implied financing much less remained sexy. Our non-Company securities portfolio ended the quarter at $884 million, down fairly from the former quarter, with the composition of our holdings most commonly unchanged.
Given the significant back-up in rates of interest, related asset length extension and portfolio expansion, we added with reference to $12 billion in long term, most commonly treasury-based hedges all over the quarter. In consequence, our hedge ratio to investment liabilities higher 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. Then again, with longer-term treasury charges and change spreads starting to display indicators of stabilization, our allocation to swap-based hedges will most likely build up over the approaching quarters. I’m going to now flip the decision again over to Peter.
Peter J. Federico — President and Leader Working Officer
Thank you, Chris. Ahead of opening the decision as much as your questions, I wish to take a second to talk about the U.S. housing finance gadget and the standing of the GSEs. The end result of the presidential election has obviously reignited the marketplace’s pastime within the GSE conservatorships and the character of the federal government’s involvement within the housing finance gadget.
Numerous proposals and opinion items lately have advocated for more than a few results starting from finishing the GSE conservatorships to keeping up establishment. Importantly, there additionally seems to be a rising consensus that any trade must be performed in some way that preserves the present capability of the normal loan marketplace, avoids disrupting the home actual property marketplace and guarantees housing affordability does no longer decline additional. To that finish, some key policymakers have already signaled the need to pursue any trade in a cautious, planned and clear method. The $7.5 trillion Company mortgage-backed safety marketplace is the cornerstone of this nation’s $14 trillion housing finance gadget, a gadget that’s the envy of the sector via offering the uninterrupted availability of the 30-year prepayable loan at uniform charges around the country and all through marketplace cycles.
The scale of the Company marketplace, the liquidity and financeability of those tools, their use as a financial coverage device and the life of the TBA marketplace and the essential position it performs for loan originators and servicers all exist as of late as a result of the federal government’s ongoing involvement, and as a result of the motion of the federal government and the Fed have taken all over instances of pressure. Additionally, the Company mortgage-backed securities marketplace is important to facilitating homeownership, reaching the various societal advantages that accompany it and doing so in a fashion this is honest and equitable. Protecting those attributes and fending off a disruptive result for the housing finance gadget, we imagine, calls for the continuing involvement of the U.S. govt.
Converting the construction of the GSEs abruptly and with out considerate attention of the various complexities and interconnectedness of the present gadget can be unnecessarily disruptive and really damaging to housing affordability. That stated, trade performed in some way that preserves the various extremely fascinating facets of the present gadget supplies readability in regards to the type of the federal government’s ongoing involvement, and which is completed in some way that protects taxpayer pastime, is usually a very sure building for the Company mortgage-backed safety marketplace. With that, we will now open the decision as much as your questions.
Questions & Solutions:
Operator
[Operator instructions] And as of late’s first query comes from Bose George with KBW. Please move forward.
Bose George — Analyst
Hiya, everybody. Excellent morning. In fact, I sought after to invite first about fairness issuance. Are you able to simply communicate concerning the attainable magnitude of fairness issuance this 12 months if spreads are identical, your guide worth top class 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’ve gotten — simply conceptually how you might be eager about that?
Peter J. Federico — President and Leader Working Officer
Certain. I respect the query, Bose. As you understand, we had been energetic the usage of our ATM this final quarter, and I’m going to get started with speaking concerning the method this final quarter and the way it was once just a little bit other than a few of our earlier quarters as a result of I feel it is informative for your query. On this final quarter, for instance, the chance, the good looks of the fairness issuance was once extra pronounced early within the quarter, while mortgages had been extra sexy later within the quarter.
I level that out as it differs just a little bit from the former quarters the place we had been very energetic in elevating capital and deploying the ones proceeds virtually concurrently. This quarter, we took a extra opportunistic method in that the capital raises had been performed early within the quarter. And as Chris discussed, a few of our capital deployment was once at extra sluggish tempo later within the quarter. It was once one of the crucial the explanation why there was once just a little little bit of a destructive have an effect on from a web unfold and greenback roll source of revenue.
However we will proceed to method the capital issuance and our capital control from the viewpoint of doing it opportunistically. Clearly, we have a look at the accretion get advantages and guide worth get advantages. In the event you glance again over the process the 12 months, it was once — all of our capital raises truly had been important participants to guide worth for our present shareholders. And deploying the ones proceeds as you are saying, on this marketplace is truly sexy.
You have a look at the place loan spreads are as of late, starting from 150 to 170 foundation issues relying on hedge combine and so on, you might be speaking about sexy ROEs, specifically now that we have long gone by way of probably the most uncertainty of the fourth quarter. The final level I’m going to make is that clearly from — in case you have a look at AGNC’s scale as of late, we’re truly pleased with our scale and running potency, truly proud of that. Our running prices are, I feel, the bottom within the trade. I be expecting them to stay in that 1% to at least one.25% vary.
The liquidity of our inventory is phenomenal and provides shareholders nice alternative to go into our area in an overly liquid, simple method. So there is no wish to develop for the sake of rising, I assume, that is my ultimate level. We’re going to accomplish that after we imagine that it’s in the advantage of our present shareholders and method that process all through the stay — all through this 12 months, identical to we do each different 12 months and accomplish that very opportunistically. I’m going to pause there.
Bose George — Analyst
Nice. That is useful. After which, simply are you able to lend a hand stroll during the ROE math whilst you fund with treasury futures as opposed to swaps since the — clearly, nominal spreads are decrease, so more or less the variables that undergo one as opposed to the opposite.
Peter J. Federico — President and Leader Working Officer
Sure. And that is the reason a excellent level, and I’m going to contact on a large number of issues. In reality, one of the crucial problems that I feel our profits measures have simply most often our web unfold and greenback roll source of revenue and one of the crucial the explanation why we — we don’t need buyers to take a look at that as a motive force of our dividend coverage as a result of it’s not. We have a look at the economics of our portfolio from a dividend viewpoint.
It is a mirrored image of present duration profits, no longer the long-run profits of our portfolio. So we have a look at the alignment of the mark-to-market, if you’re going to, of our portfolio as opposed to that. After which, after all, web unfold and greenback roll source of revenue as we outline it, and I feel maximum outline it, most effective comprises your swap-based hedges. We attempted so as to add some disclosure to our presentation this quarter to present buyers just a little bit of a higher figuring out of the similar type of identical lift traits that happen with treasuries that happen with swaps.
Within the treasury marketplace, whilst you use a treasury hedge, you might be shorting a treasury after which there is a obtain, if you’re going to, to your repo transaction. So it has the similar idea as a pay and a obtain. We added some disclosure to present buyers a greater figuring out of that lift. In order that’s one level.
The purpose No. 2 is that to the level that we use extra treasury-based hedges, there’s much less lift, much less unfold, if you’re going to, between treasury-based hedges and mortgages as a result of the place change spreads are as of late. And Chris talked concerning the truth our treasury-based hedges are at truly a prime level. I feel it is 55% of our hedges had been treasury-based hedges within the fourth quarter.
That’s not conventional, however we did that as a result of treasury-based hedges gave us a greater marketplace worth offset to our asset portfolio as a result of change spreads have tightened so dramatically during the last 12 months. 10-year change spreads, for instance, within the fourth quarter were given to greater than destructive 50 foundation issues. So a historic low. So treasury-based hedges had been higher from a marketplace worth viewpoint.
To the level that change spreads start to stabilize, and Chris discussed that phrase that we are beginning to see that stabilization, it’s going to make sense for us to rotate into swap-based hedges again to perhaps towards our commonplace stage, which could be within the 70% to 80% vary. And in doing that, we will finally end up choosing up further lift so long as change spreads keep strong. So I feel that is the solution to take into consideration it. After I discuss spreads as of late on reasonable, and I have a look at treasury — present coupon, for instance, to treasury hedges, I might say they are most likely within the 130 to 150 vary and present coupon — or to swap-based hedges, I might most likely say that they are going to stay in one of these the 160, 180 vary.
In order we shift, that can trade that weight between the ones two and pressure what our anticipated ROE is on a go-forward foundation. So I gave you a long-winded reply there, however I believed the ones issues had been essential.
Bose George — Analyst
Nice. That is useful. Thanks.
Peter J. Federico — President and Leader Working Officer
OK.
Operator
Thanks. And our subsequent query as of late comes from Doug Harter with UBS. Please move forward.
Peter J. Federico — President and Leader Working Officer
Excellent morning, Doug.
Douglas Harter — Analyst
Excellent morning, Peter. I used to be hoping it is advisable to discuss your dividend outlook. I do know you simply discussed that you do not view EAD as consultant, however more or less how you might be seeing the economics of the mark-to-market returns and the way that compares to sort of the present dividend stage?
Peter J. Federico — President and Leader Working Officer
Certain. Neatly, the very first thing we have a look at from a dividend viewpoint is what’s the general price of capital hurdle charge, if you’re going to, as opposed to our anticipated go back at present valuation ranges of the portfolio. Whilst you take into consideration the entire price of capital, I feel that is truly essential as you take into consideration what’s the price to run our industry to pay our not unusual dividends, to pay our most well-liked inventory dividends and our running bills. Because the numerator in that equation, the denominator is our general capital base, which is ready $9.2 billion.
In the event you have a look at our exact bills within the fourth quarter and annualize the ones as opposed to our capital base, it could inform you that our hurdle charge is round 16.5%, perhaps 16.7% to be exact. And the query is what will we evaluate that to? And the related comparability is what’s our anticipated, if you’re going to, gross ROE at present valuation ranges, the usage of a mix of spreads as a result of they are clearly all the time converting as a unmarried level as an alternative. However I take advantage of a combined — a variety that may be a mix between treasury-based hedges and swap-based hedges. I’m going to provide you with 3 time limits, 150 foundation issues, 160 foundation issues and 170 foundation issues.
They type of have the variability of the ones are spreads that I feel are indicative of as of late’s valuations, and the ones would translate to gross ROEs of someplace between 17% and 18.5%. So stated otherwise, if we had been to deploy capital as of late, we’d be expecting to earn spreads in that vary or ROEs on a go-forward foundation of someplace between 17% and 18.5%. And that aligns rather well with our general price of capital, and that’s the reason one of the crucial the explanation why in browsing at it that method, we have been in a position to take care of our present dividend for, I feel we are happening about 58 months. So that is the method we have a look at it, and I feel it is nonetheless effectively aligned at as of late’s valuations.
Douglas Harter — Analyst
Admire that. And simply curious the way you take into consideration volatility and the price of volatility in more or less in that equation that you simply walked by way of?
Peter J. Federico — President and Leader Working Officer
Sure. There is no doubt, and that’s the reason some degree. That is needless to say that clearly, rate of interest volatility is a huge motive force of the way your ex-ante returns will convert to ex-post returns. So will we need to spend some huge cash rebalancing? Or will we need to spend much less cash? It is one of the crucial key drivers of, for instance, our outlook for this 12 months.
I feel rate of interest volatility now that the 10-year has subsidized up — and that is essential that the 10-year has gotten again into a brand new buying and selling vary of, let’s assume, between 4.25% and 5%, it sounds as if that rate of interest volatility must stay quite low going ahead, given we have gotten by way of the entire quantitative tightening and the dramatic shifts from the Fed. Now we have stabilization. Now we have a extra accommodative Fed. Now we have a trail for temporary charges that appears to be reasonably effectively telegraphed.
The ones issues must give a contribution to decrease volatility going ahead, no less than that is our outlook presently, which must then translate to decrease hedge prices on a go-forward state, however marketplace prerequisites clearly trade. One different level that I might make there’s that our talent to lift capital — this is more or less a excellent tie again to the primary query, our talent to lift capital at accretive stage may be a possible motive force of ex-post returns, which might offset a few of that incremental hedge price that we might happen through the years with hedging. However you might be 100% proper. It might be — it will be a drag.
It is simply an order of magnitude. And presently, the outlook is, I feel, beautiful favorable for that.
Douglas Harter — Analyst
Nice. I respect all the ones solutions, Peter. Thanks.
Peter J. Federico — President and Leader Working Officer
Certain.
Operator
Thanks. And our subsequent query as of late comes from Crispin Love with Piper Sandler. Please move forward.
Crispin Love — Piper Sandler — Analyst
Thanks. Excellent morning, everybody. Simply first at the hedge ratio and hedges proceeding the new dialog, however you diminished the hedge ratio meaningfully within the 3rd quarter, however higher it to 91% within the fourth quarter. So one, simply curious, whilst you added extra hedges within the quarter.
Used to be it main as much as the election? After which, simply ideas and perspectives at the hedge ratio as of late and outlook going into — more or less proceeding by way of 2025, additionally along with your view of decrease vol anticipated?
Peter J. Federico — President and Leader Working Officer
Sure. Thanks for the query. We did build up it clearly, reasonably considerably again to 91% from 72%. However it is going again to the query that I simply spoke back as a kick off point, which is that we clearly anticipated extra rate of interest volatility as we went into the presidential election.
And obviously, there was once a large number of uncertainty and nonetheless is ready fiscal coverage and price lists and what that would possibly imply for financial coverage and what that would possibly imply for treasury issuance. However we had an 80 foundation level transfer upper within the 10-year treasury within the fourth quarter. And the explanation why we had been so energetic in rebalancing and saved our length hole necessarily unchanged quarter over quarter, 0.2 to 0.3. And that is the reason no longer all the time the case with recognize to our delta hedging and our rebalancing.
However we had been so energetic in doing so this quarter is as a result of we did not be expecting charges to whipsaw again the opposite direction. From our viewpoint presently, the backup in charges and specifically within the 10-year, transferring as much as the 4.5% to 4.75% vary seems to be type of a higher valuation for that a part of the curve given the entire uncertainty concerning the energy of the financial system and attainable resources of inflation or deflation as it can be. However we felt like being energetic in delta hedging was once truly essential as a result of we do not be expecting charges to drop materially from right here. We predict long-term charges to stay strong.
So due to this fact, we did upload a large number of hedges, and we did so specifically via including most commonly, in reality, virtually completely treasury-based hedges as a result of our uncertainty about what change spreads would do all over the quarter. So through the years, we would possibly rotate out of the ones. As Chris indicated, that shall be the case. However that is why we had been so energetic in rebalancing and holding our length hole low as a result of we did not need — we did not be expecting charges to whipsaw again.
Crispin Love — Piper Sandler — Analyst
Nice. Admire that. After which, only one final query for me. Simply an replace on Company MBS call for as you spot it as of late, banks, cash managers, simply ideas on call for on this atmosphere.
Peter J. Federico — President and Leader Working Officer
Sure. I discussed in my ready remarks, the outlook for provide, and I feel that is truly a favorable for the loan marketplace. Whilst you take into consideration the outlook and why we are so sure, it begins with the technicals for mortgages. And the technical is that the availability of mortgages in 2025 must be very identical, I might be expecting to 2024.
In 2024, the entire provide was once only a contact over $210 billion, which got here in decrease or surely on the low finish of everyone’s expectancies. And with — and this is going again to the purpose concerning the 10-year being at 4.5% or upper. The ten-year being at 4.5% or upper has driven the 30-year number one loan charge again up with reference to 7%, because of this the availability of mortgages as we commence this 12 months is most likely going to stay at the low finish of folks’s expectancies. So I be expecting the availability of mortgages — and I feel in case you have a look at maximum sellers, it is within the $200 billion to $250 billion vary, which is a favorable building.
After which, you have a look at what are the resources of call for. Final 12 months, I feel cash managers — I feel there was once general inflows into bond fund of round $450 billion, of which perhaps 20% of that or so is going into the loan marketplace. It seems that that that may be once more the case in 2025. So I might be expecting cash managers, if bond fund flows keep prime, — and surely, the previous day, you noticed rotation into bonds with fairness weak point.
That might obviously be the case. Cash managers may just call for $50 billion to $80 billion value of mortgages once more. After which, after all, the uncertainty or the unknown within the equation is financial institution call for. And financial institution call for has been strong and slowly rising.
Unquestionably, financial institution — general financial institution holdings of mortgages have higher regularly off the low level of September ’23 and still have type of grown regularly in 2024. There’s a chance with financial institution legislation being most likely much less exhausting that they are going to are available and be a larger purchaser in 2025 as opposed to 2024. We do not clearly know that but, however that is one thing we will keep watch over. So I feel in spite of everything, whilst you put that in combination, I feel the availability and insist appears to be reasonably effectively balanced, and that’s the reason a very powerful motive force of our outlook.
Any practice up there?
Operator
Thanks. I’m going to transfer directly to our subsequent query. Our subsequent query comes from Trevor Cranston of Electorate JMP. Please move forward.
Trevor Cranston — Analyst
Hiya. Thank you. Excellent morning. You guys discussed that you have been including towards the tip of the quarter and feature persevered into January.
Assuming that the portfolio additions are expanding leverage, are you able to communicate just a little bit about more or less what your present leverage goal can be? What the funding alternatives — the place they’re as of late? And a part of that, additionally as you might be including, if you’ll perhaps communicate just a little bit about in case you’ve observed any type of adjustments to your relative worth perspectives of TBAs as opposed to spec swimming pools?
Peter J. Federico — President and Leader Working Officer
Certain. I’m going to get started with the primary phase, after which Chris can discuss TBA as opposed to swimming pools and different relative worth. So first, whilst you have a look at our leverage, it is been reasonably constant, in reality, very constant during the last three hundred and sixty five days within the 7.2, 7.3 vary. And the excellent news there’s we had been in a position to generate truly sexy returns with that type of leverage stage.
And with leverage at that stage, we clearly nonetheless have an enormous quantity of our capital and unencumbered. As Bernie discussed, 66% of our capital is unencumbered. So we now have a truly sturdy place from a threat control viewpoint. And after we take into consideration leverage, clearly, there is a large number of drivers.
One, we would like clearly, loan spreads to be sexy, which they’re. We wish rate of interest volatility to be strong or declining, which we expect it can be, which is a favorable. After which, we will simply make that call type of on a case-by-case foundation. However I feel one of the crucial key issues is whilst you take into consideration spreads, no longer most effective do they wish to be sexy, we would like them to be strong.
And one of the crucial issues that I feel materialized in 2024 is the truth that loan spreads stayed very — traded in truly a quite tight vary, specifically in case 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 issues. That is nice for our industry. We wish unfold volatility to be low.
We wish spreads to be sexy. If the ones prerequisites proceed, it could make us undoubtedly vulnerable concerning the marketplace and our threat place. So once more, I am not going to present a forecast on that, however the ones are the prerequisites that we have a look at for taking threat just a little upper. And Chris can discuss the place we have been deploying proceeds.
As he discussed, we began so as to add some mortgages in January.
Christopher Jon Kuehl — Govt Vice President, Company Portfolio Investments
Certain. So all over the quarter, we persevered to shift our holdings to better coupons. As I discussed, we diminished holdings in 4 and a part and decrease coupons via about $6 billion, added just below $8 billion and 5% in upper coupons. Manufacturing coupon valuations nonetheless be offering probably the most very best longer-run risk-adjusted returns.
And whilst upper coupons carried out rather well final 12 months, the majority of that go back was once lift, no longer unfold tightening. And so, spreads are nonetheless very sexy. And so, that is the place we have been allocating marginal capital. The relative worth image around the coupon stack may just surely shift this 12 months if banks are extra concerned and issuance stays gentle given the place loan charges lately are.
However once more, given present unfold relationships with recognize to the coupon stack, marginal capital goes to most commonly be deployed in upper coupons. With recognize to TBAs as opposed to specified swimming pools, specifications most often have carried out rather well. They did within the fourth quarter. And whilst we did have some alternatives so as to add upper high quality swimming pools at excellent ranges, there are some more moderen manufacturing classes which might be buying and selling at quite complete valuations.
And so, we are content material to be affected person there and lift a little upper TBA place with prepayment threat low and roll beginning to industry higher.
Trevor Cranston — Analyst
Were given it. OK. That is useful. Thanks.
Peter J. Federico — President and Leader Working Officer
Certain.
Operator
And our subsequent query as of late comes from Eric Hagen of BTIG. Please move forward.
Peter J. Federico — President and Leader Working Officer
Excellent morning, Eric.
Eric Hagen — Analyst
Hiya. Thank you. Excellent morning, guys. If we tease aside the projection for prepayment speeds, are you able to perhaps percentage more or less what loan charge you had been assuming in that projection and the way you could — and the way it is perhaps modified within the get started of the 12 months? After which, how you could evaluate or represent the reinvestment threat that you just face with prepays and spreads at those ranges as opposed to when speeds were sooner?
Christopher Jon Kuehl — Govt Vice President, Company Portfolio Investments
Sure. So our CPR projections are merely in keeping with the spot — the ahead curve as of the tip of the 12 months. Simply extra most often talking, with recognize to prepayment threat, I might say the fourth quarter was once some of the fascinating set of stories that we have had since COVID, October and November, specifically. Loan charges approached — mainly hit 6% in September.
We had a lovely sizable portion of the drift and better coupons that had an incentive to refinance and speeds had been very rapid in October and exceeded maximum style expectancies. However with the pointy sell-off in charges, November speeds then got here in materially slower, underneath maximum style expectancies. And so, it is most likely October speeds had been impacted via very prime pull-through charges. However I might say even nonetheless net-net, whilst you have a look at the 2 months in combination, the reaction was once the steepest we have had truly since COVID.
And so, right into a sustained rally, we are by no means having a bet on a benign prepayment reaction. It is transparent lenders are going to be very competitive soliciting simple to refi debtors. However once more, prepayment threat may be very manageable by way of asset variety and diversification. And asset variety does not imply simply proudly owning the very best quality swimming pools with probably the most prepayment coverage.
In reality, it continuously does not, relying on the place pay-ups are valued. It is very impactful to only steer clear of the worst swimming pools are the quickest collateral. And so, once more, energetic control is essential throughout more than a few charge situations.
Eric Hagen — Analyst
Nice colour there. I respect that. All proper. So perhaps construction off the outlook from the query round banks.
I imply, how do you spot the have an effect on of financial institution legislation perhaps riding financial institution urge for food as repo counterparties, each to AGNC and to the marketplace extra extensively? I imply, do you’ve gotten any views at the provide of repo going ahead? And truly simply any have an effect on that might transmit directly to loan spreads on the similar time?
Peter J. Federico — President and Leader Working Officer
Sure. So first, at the financial institution facet, once more, financial institution balances were rising, which is a very powerful truth. Two, it sounds as if that banks — once they do upload, they look like including in an available-for-sale capability as adverse and hedging extra that is simply anecdotal as opposed to the held-to-maturity. In order that’s clearly, I feel, a excellent signal for his or her talent so as to add mortgages and accomplish that on a hedge foundation and set up their rate of interest threat.
After which, obviously, from the place we had been, let’s assume, I assume, it was once almost definitely in the course of the 12 months when the Basel finish recreation was once so unsure and there was once numerous unintentional penalties in a few of the ones previous variations of that legislation to the place we are actually, it sounds as if that financial institution legislation goes to be surely much less exhausting and even perhaps quiet for a time frame, which I feel bodes effectively for financial institution call for. So clearly, we haven’t any different perception into it than that, however it does appear from a directional viewpoint that it may well be better versus smaller. With recognize to the repo marketplace, because the Fed drains balances — financial institution reserve balances out of the gadget, which they’re doing now, there’ll come a time, and I be expecting it to be this 12 months the place they’ll prevent as a result of I feel whilst you have a look at the place financial institution reserves are actually at about $3.2 trillion, I feel they are entering the variability of the place financial institution reserves from a goal viewpoint relative to GDP, someplace within the 10% to 11% vary is probably the most steerage that the Fed has mentioned, no longer that they’re managing to that, however it is surely a sign. It seems that that financial institution reserves are entering the objective vary the place they have got moved from ample to plentiful.
And that is the reason what the Fed is on the lookout for. And the Fed is browsing to the repo marketplace for indications of that — and we’re seeing indications of that, that means that the repo marketplace is now at duration ends and reporting sessions appearing probably the most volatility that you’d see in most cases when financial institution reserves get to that much less ample stage. We noticed the repo spreads to SOFR over year-end being within the 50 to 100 foundation level vary. We noticed it within the 3rd quarter, we noticed it previous to that.
So reporting sessions may have some volatility. It is going to be just a little bit upper price. It is one of the crucial issues that contributed to our upper price relative to our change guide going ahead. The Fed is obviously observing this very intently, keen to and feature already made adjustments, which is essential adjustments to the best way they run their methods to control this sparsely.
The Fed does no longer need the investment markets to be disrupted. And I do not be expecting any limitation from a repo viewpoint to get to the particular reply that you are speaking about. There is a number of repo capability for company mortgage-backed securities. Sure, it can be a couple of foundation issues extra price, specifically over reporting sessions, however this is a price query, no longer a capability query.
So I do not be expecting that to be a restricting issue for call for in any respect.
Eric Hagen — Analyst
Nice stuff. I respect the solution. Thank you guys.
Peter J. Federico — President and Leader Working Officer
Certain. Thanks.
Operator
Thanks. And our subsequent query as of late comes from Jason Stewart at Janney. Please move forward.
Peter J. Federico — President and Leader Working Officer
Excellent morning.
Jason Stewart — Janney 1st viscount montgomery of alamein Scott — Analyst
Excellent morning, Peter. Thank you for the colour on profits. That does excellent stroll by way of. Bernie, simply I overlooked the purpose on futures and what that may have added if it was once in that unfold and greenback roll source of revenue on a similar foundation to the quarter.
Peter J. Federico — President and Leader Working Officer
Sure. Bernie discussed that — I feel your query was once about treasuries. Is that proper? I did not pay attention. Sure.
Bernie discussed that this final quarter, and we added a web page in some disclosure in our again of our presentation, I omit what web page it’s precisely.
Bernice E. Bell — Govt Vice President, Leader Monetary Officer
It is on Web page 24.
Peter J. Federico — President and Leader Working Officer
On Web page 24, that displays you one of these the pay facet of the equation, what we are paying and the place our repo charges had been. And in case you have a look at that, we concluded that it was once almost definitely round $0.04 of profits that if we had — if web unfold and greenback roll source of revenue integrated that, it could be one thing like about $0.04. Clearly, as a result of one of the crucial demanding situations with that measure is as a result of we use futures, that lift element needs to be type of imputed, if you’re going to. So we needed to get a hold of a technique that is one of the crucial shortcomings of it.
However nevertheless, to provide you with an order of magnitude, we expect it is in that vary of round $0.04 this final quarter.
Jason Stewart — Janney 1st viscount montgomery of alamein Scott — Analyst
Were given it. After which, had been you in a position to quantify the have an effect on of the ATM timing, so issuing early and deploying later within the quarter?
Peter J. Federico — President and Leader Working Officer
Neatly, what I might say is whilst you have a look at the have an effect on of the issuance, I feel you’ll do it in a lot of other ways. You’ll have a look at our reasonable worth — and the common worth, that means $500 million value of inventory as opposed to $53 million would provide you with a mean worth of $9.60 simply on that calculation. And also you have a look at that relative to our starting and finishing guide worth, you’ll conclude that it was once an excessive amount of accretion. You have to additionally have a look at our complete source of revenue and our dividend and conclude in keeping with our guide worth that it almost definitely contributed one thing in the community of $0.06 or so of guide worth, perhaps just a little bit extra.
After which, as Chris discussed, there was once clearly a large number of volatility and uncertainty early within the quarter. So elevating capital at an accretive stage after which deploying it extra step by step later within the quarter, we clearly noticed loan spreads widen all over the quarter. They peaked round mid-quarter and now are nonetheless ended the quarter wider than they had been at the start. So via deploying the ones proceeds at a slower tempo gave us the capability to speculate, as Chris discussed, at sexy ranges past due within the quarter and nonetheless at sexy ranges this quarter.
Jason Stewart — Janney 1st viscount montgomery of alamein Scott — Analyst
OK. All proper. We’re going to make some assumptions on how that impacted profits. I respect it, Peter.
Peter J. Federico — President and Leader Working Officer
Certain.
Operator
Thanks. And our ultimate query as of late comes from Harsh Hemnani with Inexperienced Boulevard. Please move forward.
Harsh Hemnani — Inexperienced Boulevard Advisors — Analyst
Thanks.
Peter J. Federico — President and Leader Working Officer
Excellent morning, Harsh.
Harsh Hemnani — Inexperienced Boulevard Advisors — Analyst
Excellent morning. You discussed that your base case for spreads is that they continue to be inside the buying and selling vary that they have got been in for a while. What to your thoughts are the hazards to that base case that might pressure spreads both upper out of your — outdoor that buying and selling vary or decrease?
Peter J. Federico — President and Leader Working Officer
Neatly, sure, you might be proper. And they have got been remarkably strong. And I feel we are happening about seven quarters perhaps of this buying and selling vary, which I in finding to be truly encouraging. I feel mortgages are — given just a little little bit of a backup, mortgages in the course of the variability, clearly feels just a little bit higher to us than being on the tight finish of the variability.
However I might say that there is almost definitely two number one dangers. One is — pertains to financial coverage and rates of interest normally. If the rates of interest change into extraordinarily unstable, that means if rates of interest had been to transport materially upper than we wait for or materially not up to we wait for. Chris discussed it might cause refinance process in the event that they had been to rally for some unexpected explanation why or we may have rates of interest again up as a result of, for instance, considerations about deficit spending and treasury issuance.
The ones may just put drive on fastened source of revenue extensively, and so they may just put drive on loan spreads. In order that can be one. After which, clearly, the entire dialogue, that is why I integrated the — in my ready remarks, the additional dialogue about housing coverage, if you’re going to, clearly, there’s extra pastime within the GSEs and the GSEs conservatorship as of late than there was once previous to the Trump management. And so, there’s some uncertainty about that result.
We imagine in spite of everything that the entire nice attributes of the present gadget, I feel folks will come in combination and agree that they wish to be preserved. I do not believe from a political viewpoint, from a homeownership viewpoint, from an financial viewpoint, from a Fed viewpoint that anyone would conclude that they don’t need all of those options that we’ve got as of late. After which, that implies additionally then if you wish to keep the ones options, given the scale of the marketplace, it is most likely 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 may well be some uncertainty as folks have evaluations and ideological variations about that that might create some unfold volatility. So spreads could also be just a little upper than they’d another way be. They could also be just a little wider than they another way can be, may just transfer us in that vary for your query. However in spite of everything, I feel they’re going to come again into the variability.
And at this unfold vary, I feel mortgages be offering a large number of worth. They provide worth in case you are making an investment in treasury securities and so they be offering worth in case you are making an investment in investment-grade company debt, which isn’t all the time the case. So mortgages to us seem like an ideal asset elegance and inexpensive at this valuation.
Christopher Jon Kuehl — Govt Vice President, Company Portfolio Investments
I’m going to simply upload. I feel Peter lined the — what may just wonder to the broader facet. The opposite facet of the equation, I feel — glance, to the level that financial institution securities expansion is far more potent than expected. That is an opportunity on looser regulatory outlook going ahead.
I imply, in another country process may just additionally wonder to the level that the Fed and BOJ coverage continues to transport in reverse instructions that reduces FX hedging prices for banks in Japan. And so, glance, there is a large number of issues which might be unknowns and may just wonder to the tighter facet as effectively. However once more, our base case is beautiful firmly rooted and unchanged to perhaps modestly tighter spreads for this 12 months.
Harsh Hemnani — Inexperienced Boulevard Advisors — Analyst
Were given it. Thanks. I’m going to depart it there.
Peter J. Federico — President and Leader Working Officer
Thanks.
Operator
Thanks. And this concludes our question-and-answer consultation. I might like to show the decision again over to Peter Federico for last remarks.
Peter J. Federico — President and Leader Working Officer
Once more, I respect everyone collaborating at the name as of late. And once more, we are inspired via the outlook for our underlying asset elegance and for our industry in 2025, and we look ahead to talking to you once more on the finish of subsequent quarter.
Operator
[Operator signoff]
Length: 0 mins
Name contributors:
Katie Turlington — Investor Members of the family
Peter J. Federico — President and Leader Working Officer
Bernice E. Bell — Govt Vice President, Leader Monetary Officer
Christopher Jon Kuehl — Govt Vice President, Company Portfolio Investments
Peter Federico — President and Leader Working Officer
Bose George — Analyst
Douglas Harter — Analyst
Doug Harter — Analyst
Crispin Love — Piper Sandler — Analyst
Trevor Cranston — Analyst
Chris Kuehl — Govt Vice President, Company Portfolio Investments
Eric Hagen — Analyst
Jason Stewart — Janney 1st viscount montgomery of alamein Scott — Analyst
Bernie Bell — Govt Vice President, Leader Monetary Officer
Harsh Hemnani — Inexperienced Boulevard Advisors — Analyst
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