IVR: From Shrink to Scale — A Turnaround in Agency MBS
Expanding the balance sheet via ATM while navigating a hawkish Fed and curve flattening
IVR · Earnings Call · 2026-07-31
Expansion Amid Uncertainty
Invesco Mortgage Capital (IVR) reported its second-quarter 2026 earnings, delivering an economic return of 3.8%, consisting of monthly dividends of $0.12 per share and a modest decline in book value of 0.6%. “Against this backdrop, we generated an economic return of 3.8%, consisting of monthly dividends of $0.12 per share and a modest decline in book value per share of 0.6%.” — Kevin Collins, Chief Executive Officer · 2026-07-31 The company continues to lean on its strengths in treasury yield dynamics and interest rate swap hedges to manage its leveraged agency MBS portfolio. CEO Kevin Collins emphasized the strategic focus on growth through at-the-market (ATM) equity issuance. “we raised roughly $118 million in Q2, all at levels close to book value and that at a pretty steady run rate. We'll look to continue to do that to the extent that we can do so responsibly and where it makes sense.” — Kevin Collins, Chief Executive Officer · 2026-07-31 This capital has been deployed into higher-coupon specified pools, as CIO Brian Norris explained: “we've been deploying in that higher coupon range, 30-year 5 through 6s primarily... specified pool valuations have become more attractive relative to TBA.” — Brian Norris, Chief Investment Officer · 2026-07-31 The company's stock has grown its equity base significantly, with equity rising from $798M in Q4-2025 to $876M in Q1-2026, a pace that management believes improves operating efficiency and stock liquidity. This growth strategy is not new—the same ATM-driven expansion was highlighted in the prior quarter's call as well. “We raised nearly 134 million net of issuance costs in Q1 through our ATM. Those were timed pretty steadily throughout the quarter.” — Kevin Collins, CEO · 2026-05-01Navigating a Bear-Flattening Curve
The quarter was marked by a bear-flattening yield curve, as short-term rates rose more than long-term yields on expectations of a Fed hike rather than a cut. “The treasury yield curve bear flattened in the second quarter as expectations for near-term monetary policy shifted from easing to tightening.” — Brian Norris, Chief Investment Officer · 2026-07-31 The new Fed chair, Kevin Warsh, delivered a hawkish message, which initially pushed the 2-year breakeven down to 2% but raised uncertainty. IVR has kept its hedge ratio elevated at 97%, relying heavily on interest rate swaps. Norris noted that swap spreads remain historically tight, making swaps an attractive hedge. “we're still very comfortable with most of our hedge book being in interest rate swaps... we saw a modest improvement in swap spreads during the second quarter. But year-to-date, they're still a little bit tighter. So we still feel like that, that's a pretty attractive entry point to use for our hedge book.” — Brian Norris, Chief Investment Officer · 2026-07-31 This stance mirrors the firm's long-standing preference for swaps, as articulated in prior calls: “We still do prefer interest rate swaps. We do think that, like we said, we do expect swap spreads to continue to normalize. And as that occurs, we'll kind of continue to move more into treasury futures, just given some of the benefits that we see there from a liquidity and margining perspective.” — Brian Norris, Chief Investment Officer · 2025-10-31 In this environment, the company sees value in prepayment protection, especially in specified pools. Norris highlighted the importance of loan balance and collateral selection:This conviction anchors their investment strategy as they balance carry and convexity risk.Our weighted average payups at quarter end was about 28... that equates to about $50 million of market value... we think specified pool payups could soften. But as we mentioned, we think that's a pretty compelling opportunity to add because we do think that going forward, the valuations of generic collateral will continue to deteriorate.