AGNC Investment's Tangible Book Value Drops 17% Amid Surging Treasury Yields

AGNC Investment saw its tangible book value drop by 16.9% in the third quarter, sliding $1.45 to $7.13 per share. The decline was driven by surging Treasury yields that heavily impacted mortgage-backed securities, pushing shares down by a quarter over a three-month period and sending the mortgage real estate investment trust's dividend yield past 17.5%.

Despite the book value decline, the company maintained its monthly dividend at $0.12 per share for November, continuing a rate held steady since 2020. The payout is funded through income rather than book value. AGNC's net spread and dollar roll income reached $0.37 per share for the quarter, narrowly covering the $0.36 in declared dividends, though down from $0.40 in the previous quarter and $0.42 in the first quarter.

The earnings squeeze stemmed from higher funding costs, with the average cost of funds increasing to 3.09% from 2.89%, outpacing a minor rise in asset yields from 4.89% to 4.95%. CEO Peter Federico noted that the firm's portfolio generated about a 20% return during the quarter, aligning with its roughly 19% total cost of capital. Additionally, AGNC raised nearly $1 billion by selling stock above book value during the period, expanding its asset base by approximately $2.5 billion.

What to watch next

Investors should monitor future funding costs, net spread income trends, and quarterly book value updates to gauge the long-term sustainability of the double-digit dividend yield.