AGNC Investment Corp. (AGNC) Q4 2024 Earnings Call Transcript

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AGNC Investment Corp. (NASDAQ: AGNC)
Q4 2024 Earnings Call
Jan 28, 2025, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the AGNC Investment Corp. fourth quarter 2024 shareholder call. [Operator instructions] Please note today's event is being recorded. I would now like to turn the conference over to Katie Turlington in investor relations.

Katie Turlington -- Investor Relations

Thank you all for joining AGNC Investment Corp.'s fourth quarter 2024 earnings call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contains 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 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 AGNC's periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at sec.gov.

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We disclaim any obligation to update our forward-looking statements unless required by law. Participants on this 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 Pas, senior vice president, non-Agency portfolio management; and Sean Reid, executive vice president, strategy and corporate development. With that, I turn the call over to Peter Federico.

Peter J. Federico -- President and Chief Operating Officer

Good morning, everyone, and thank you for joining our call. The favorable investment themes that emerged in 2024 continue to support our positive outlook for agency mortgage-backed securities. Last year, the Fed shifted its restrictive monetary policy stance and began the process of returning short-term rates to a neutral level. Declining inflationary pressures and accommodative monetary policy caused interest rate volatility to ease and the yield curve to steepen after being inverted for more than two years.

As we begin 2025, the supply and demand outlook for Agency MBS appears to be well balanced. In addition, and most important to our business, we expect Agency spreads to benchmark rates to remain in the same well-defined trading range, thus providing levered and unlevered investors very attractive return opportunities. Against this improved investment backdrop, AGNC generated a positive economic return of 13.2% into 2024, driven by our compelling monthly dividend. Our performance last year demonstrates AGNC's ability to generate strong investment returns in environments where spreads are wide and stable.

Since September, the Fed lowered short-term rates by 100 basis points as it recalibrated monetary policy. While the path of monetary policy continues to move toward a neutral level, strong economic data late in the quarter extended the timeline as evidenced by the Fed's December Summary of Economic Projections, which showed fewer rate cuts in 2025 and 2026 relative to the September release. The U.S. presidential election also raised concerns about fiscal policy, deficit spending and the magnitude of future treasury issuance.

This elevated monetary and fiscal policy uncertainty, overshadowed the positive investment sentiment that characterized the first three quarters of the year. Together, the sharp increase in interest rates and modestly wider Agency spreads drove our slightly negative economic return for the fourth quarter. As we begin 2025, our outlook for Agency mortgage-backed securities continues to be very favorable. Despite significant monetary policy easing, longer-term interest rates have increased meaningfully, and the 30-year primary mortgage rate is once again close to 7%.

At this rate level, the supply of Agency MBS this year should be similar to what we experienced last year and reasonably well aligned with investor demand. Greater bank demand is also possible, given the like of less onerous regulation. Lastly, Agency mortgage-backed securities offer investors unique diversification benefits and an attractive return profile, but are difficult for many investors to access. AGNC's common stock provides investors an easy way to invest in this unique fixed income asset class on a levered and hedged basis, which is otherwise only available to institutional investors with sophisticated trading desks.

So in summary, the current monetary policy stance of the Fed provides a positive underlying investment foundation for high-quality fixed income instruments, like Agency mortgage-backed securities, particularly at current valuation levels. The supply and demand outlook for Agency MBS appears to be well balanced with upside demand possible. And finally, we expect Agency spreads to remain in their current attractive trading range. Collectively, these positive dynamics create a favorable investment backdrop for AGNC in 2025.

With that, I'll now turn the call over to Bernie Bell to discuss our financial results in greater detail.

Bernice E. Bell -- Executive Vice President, Chief Financial Officer

Thank you, Peter. For the fourth quarter, AGNC had a comprehensive loss of $0.11 per common share. Economic return on tangible common equity was negative 0.6% for the quarter, comprised of $0.36 of dividends declared per common share and a $0.41 decline in our tangible net book value per share resulting from higher interest rates and modestly wider spreads for the year. As Peter mentioned, our full year economic return was a positive 13.2%, driven by our monthly dividend totaling $1.44 per common share and a $0.29 decline in tangible net book value per share.

As of late last week, our tangible net book value per common share was up about 1% for January, are largely unchanged after deducting our monthly dividend accrual. In the fourth quarter, we opportunistically raised $511 million of common stock through our at-the-market offering program at a considerable premium to tangible net book value. This brought our total issuance of accretive common equity for the year to approximately $2 billion, delivering meaningful book value accretion to our common stockholders. Our average and ending leverage for the fourth quarter was unchanged at 7.2 tmes tangible equity compared to the third quarter.

Additionally, we concluded the quarter with unencumbered cash and Agency MBS of $6.1 billion or 66% of our tangible equity. The average projected life CPR for our portfolio at quarter end decreased 7.7% from 13.2% at the end of the third quarter, consistent with higher interest rates. Actual CPRs for the quarter averaged 9.6%, up from 7.3% in the third quarter. Lastly, net spread and dollar roll income declined by $0.06 to $0.37 per common share in the fourth quarter due to a 30 basis point narrowing of our net interest rate spread to just above 190 basis points.

The decline in our net spread, income and net interest margin was driven by a slightly higher pay rate on our interest rate swap portfolio, timing differences between the receive rate on our interest rate swaps and our repo cost, and lastly, our shift toward a greater proportion of treasury-based hedges, which are not included in our reported net interest spread or net spread income. To enhance transparency, we have included additional details on our treasury position and associated carry component in our investor presentation and earnings release. We estimate that the carry on treasury hedges was $0.04 per share for the fourth quarter. And with that, I'll now turn the call over to Chris Kuehl to discuss the Agency mortgage market.

Christopher Jon Kuehl -- Executive Vice President, Agency Portfolio Investments

Thanks, Bernie. The fixed income investment landscape in 2024 was shaped by economic data and evolving Fed policy expectations leading to significant interest rate volatility. The fourth quarter was no exception, with strong economic data leading to renewed hawkish rhetoric from the Fed and the paring back of future rate cuts for market pricing. This evolving monetary policy outlook, combined with the general risk-off sentiment ahead of the presidential election caused Agency MBS to underperform swap and treasury hedges, particularly in the month of October.

Following the election, however, MBS spreads recovered somewhat, with a 30-year par coupon spread to a blend of 5- and 10-year treasury hedges, ending the quarter 6 basis points wider. Performance across the coupon stack was mixed with higher coupon MBS performing the best, while four and a half in lower coupons generally experienced the greatest underperformance. During the fourth quarter, we added approximately $2 billion in Agency MBS. And as a result, our investment portfolio totaled $73.3 billion as of December 31.

Our asset growth was concentrated later in the quarter at attractive spreads, and we've continued to add to the investment portfolio in the month of January. In terms of portfolio composition, we continued to move up in coupon, reducing holdings in four and a half in lower coupons by roughly $6 billion while adding approximately $8 billion and 5% and higher coupons. As has been the case for several quarters now, our TBA position consisted primarily of Ginnie Mae TBAs as valuations and roll implied financing less remained attractive. Our non-Agency securities portfolio ended the quarter at $884 million, down slightly from the previous quarter, with the composition of our holdings mostly unchanged.

Given the meaningful back-up in interest rates, associated asset duration extension and portfolio growth, we added close to $12 billion in longer term, mostly treasury-based hedges during the quarter. As a result, our hedge ratio to funding liabilities increased materially to 91%, and treasury-based hedges as a percentage of our hedge portfolio represented 53% on a dollar duration basis as of quarter end. However, with longer-term treasury rates and swap spreads beginning to show signs of stabilization, our allocation to swap-based hedges will likely increase over the coming quarters. I'll now turn the call back over to Peter.

Peter J. Federico -- President and Chief Operating Officer

Thanks, Chris. Before opening the call up to your questions, I want to take a moment to discuss the U.S. housing finance system and the status of the GSEs. The outcome of the presidential election has clearly reignited the market's interest in the GSE conservatorships and the nature of the government's involvement in the housing finance system.

A number of proposals and opinion pieces recently have advocated for various outcomes ranging from ending the GSE conservatorships to maintaining status quo. Importantly, there also appears to be a growing consensus that any change should be done in a way that preserves the current functionality of the conventional mortgage market, avoids disrupting the domestic real estate market and ensures housing affordability does not decline further. To that end, some key policymakers have already signaled the desire to pursue any change in a careful, deliberate and transparent way. The $7.5 trillion Agency mortgage-backed security market is the cornerstone of this country's $14 trillion housing finance system, a system that is the envy of the world by providing the uninterrupted availability of the 30-year prepayable mortgage at uniform rates across the nation and throughout market cycles.

The size of the Agency market, the liquidity and financeability of these instruments, their use as a monetary policy tool and the existence of the TBA market and the important role it plays for mortgage originators and servicers all exist today because of the government's ongoing involvement, and because of the action of the government and the Fed have taken during times of stress. Moreover, the Agency mortgage-backed securities market is critical to facilitating homeownership, achieving the many societal benefits that accompany it and doing so in a manner that is fair and equitable. Preserving these attributes and avoiding a disruptive outcome for the housing finance system, we believe, requires the ongoing involvement of the U.S. government.

Changing the structure of the GSEs hastily and without thoughtful consideration of the many complexities and interconnectedness of the current system would be unnecessarily disruptive and very harmful to housing affordability. That said, change done in a way that preserves the many highly desirable aspects of the current system provides clarity regarding the form of the government's ongoing involvement, and which is done in a way that protects taxpayer interest, could be a very positive development for the Agency mortgage-backed security market. With that, we'll now open the call up to your questions.

Questions & Answers:

Operator

[Operator instructions] And today's first question comes from Bose George with KBW. Please go ahead.

Bose George -- Analyst

Hey, everyone. Good morning. Actually, I wanted to ask first about equity issuance. Can you just talk about the potential magnitude of equity issuance this year if spreads are similar, your book value premium remains the way it is? And just thoughts on, is there a level of balance sheet where it gets too big? Or do you have -- just conceptually how you're thinking about that?

Peter J. Federico -- President and Chief Operating Officer

Sure. I appreciate the question, Bose. As you know, we were active using our ATM this last quarter, and I'll start with talking about the approach this last quarter and how it was a little bit different than some of our previous quarters because I think it's informative to your question. In this last quarter, for example, the opportunity, the attractiveness of the equity issuance was more pronounced early in the quarter, whereas mortgages were more attractive later in the quarter.

I point that out because it differs a little bit from the previous quarters where we were very active in raising capital and deploying those proceeds almost simultaneously. This quarter, we took a more opportunistic approach in that the capital raises were done early in the quarter. And as Chris mentioned, some of our capital deployment was at more gradual pace later in the quarter. It was one of the reasons why there was a little bit of a negative impact from a net spread and dollar roll income.

But we'll continue to approach the capital issuance and our capital management from the perspective of doing it opportunistically. Obviously, we look at the accretion benefit and book value benefit. If you look back over the course of the year, it was -- all of our capital raises really were significant contributors to book value for our existing shareholders. And deploying those proceeds as you say, in this market is really attractive.

You look at where mortgage spreads are today, ranging from 150 to 170 basis points depending on hedge mix and so forth, you're talking about attractive ROEs, particularly now that we've gone through some of the uncertainty of the fourth quarter. The last point I'll make is that obviously from -- if you look at AGNC's scale today, we are really comfortable with our scale and operating efficiency, really happy with that. Our operating costs are, I think, the lowest in the industry. I expect them to remain in that 1% to 1.25% range.

The liquidity of our stock is outstanding and gives shareholders great opportunity to enter our space in a very liquid, easy way. So there's no need to grow for the sake of growing, I guess, that's my final point. We'll do so when we believe that it is in the benefit of our existing shareholders and approach that activity throughout the remain -- throughout this year, just like we do every other year and do so very opportunistically. I'll pause there.

Bose George -- Analyst

Great. That's helpful. And then, just can you help walk through the ROE math when you fund with treasury futures versus swaps because the -- obviously, nominal spreads are lower, so kind of the variables that go through one versus the other.

Peter J. Federico -- President and Chief Operating Officer

Yes. And that's a good point, and I'll touch on a lot of points. In fact, one of the issues that I think our earnings measures have just generally our net spread and dollar roll income and one of the reasons why we -- we don't want investors to look at that as a driver of our dividend policy because it is not. We look at the economics of our portfolio from a dividend perspective.

It's a reflection of current period earnings, not the long-run earnings of our portfolio. So we look at the alignment of the mark-to-market, if you will, of our portfolio versus that. And then, of course, net spread and dollar roll income as we define it, and I think most define it, only includes your swap-based hedges. We tried to add some disclosure to our presentation this quarter to give investors a little bit of a better understanding of the same sort of similar carry characteristics that occur with treasuries that occur with swaps.

In the treasury market, when you use a treasury hedge, you're shorting a treasury and then there's a receive, if you will, on your repo transaction. So it has the same concept as a pay and a receive. We added some disclosure to give investors a better understanding of that carry. So that's one point.

The point No. 2 is that to the extent that we use more treasury-based hedges, there is less carry, less spread, if you will, between treasury-based hedges and mortgages because of where swap spreads are today. And Chris talked about the fact our treasury-based hedges are at really a high point. I think it's 55% of our hedges were treasury-based hedges in the fourth quarter.

That is not typical, but we did that because treasury-based hedges gave us a better market value offset to our asset portfolio because swap spreads have tightened so dramatically over the last year. 10-year swap spreads, for example, in the fourth quarter got to more than negative 50 basis points. So a historical low. So treasury-based hedges were better from a market value perspective.

To the extent that swap spreads begin to stabilize, and Chris mentioned that word that we're starting to see that stabilization, it will make sense for us to rotate into swap-based hedges back to maybe toward our normal level, which might be in the 70% to 80% range. And in doing that, we'll end up picking up additional carry as long as swap spreads stay stable. So I think that's the way to think about it. When I talk about spreads today on average, and I look at treasury -- current coupon, for example, to treasury hedges, I would say they're likely in the 130 to 150 range and current coupon -- or to swap-based hedges, I would likely say that they will remain in the sort of the 160, 180 range.

So as we shift, that will change that weight between those two and drive what our expected ROE is on a go-forward basis. So I gave you a long-winded answer there, but I thought those points were important.

Bose George -- Analyst

Great. That's helpful. Thank you.

Peter J. Federico -- President and Chief Operating Officer

OK.

Operator

Thank you. And our next question today comes from Doug Harter with UBS. Please go ahead.

Peter J. Federico -- President and Chief Operating Officer

Good morning, Doug.

Douglas Harter -- Analyst

Good morning, Peter. I was hoping you could talk about your dividend outlook. I know you just mentioned that you don't view EAD as representative, but kind of how you're seeing the economics of the mark-to-market returns and how that compares to kind of the current dividend level?

Peter J. Federico -- President and Chief Operating Officer

Sure. Well, the first thing we look at from a dividend perspective is what is the total cost of capital hurdle rate, if you will, versus our expected return at current valuation levels of the portfolio. When you think about the total cost of capital, I think that's really critical as you think about what is the cost to run our business to pay our common dividends, to pay our preferred stock dividends and our operating expenses. As the numerator in that equation, the denominator is our total capital base, which is about $9.2 billion.

If you look at our actual expenses in the fourth quarter and annualize those versus our capital base, it would tell you that our hurdle rate is around 16.5%, maybe 16.7% to be precise. And the question is what do we compare that to? And the relevant comparison is what is our expected, if you will, gross ROE at current valuation levels, using a combination of spreads because they're obviously always changing as a single point instead. But I use a blended -- a spread that is a blend between treasury-based hedges and swap-based hedges. I'll give you three points in time, 150 basis points, 160 basis points and 170 basis points.

They sort of have the range of those are spreads that I think are indicative of today's valuations, and those would translate to gross ROEs of somewhere between 17% and 18.5%. So said another way, if we were to deploy capital today, we would expect to earn spreads in that range or ROEs on a go-forward basis of somewhere between 17% and 18.5%. And that aligns very well with our total cost of capital, and that's one of the reasons why in looking at it that way, we've been able to maintain our current dividend for, I think we're going on about 58 months. So that's the way we look at it, and I think it's still well aligned at today's valuations.

Douglas Harter -- Analyst

Appreciate that. And just curious how you think about volatility and the cost of volatility in kind of in that equation that you just walked through?

Peter J. Federico -- President and Chief Operating Officer

Yes. There's no doubt, and that's a point. That's for sure that obviously, interest rate volatility is a big driver of how your ex-ante returns will convert to ex-post returns. So will we have to spend a lot of money rebalancing? Or will we have to spend less money? It's one of the key drivers of, for example, our outlook for this year.

I think interest rate volatility now that the 10-year has backed up -- and this is important that the 10-year has gotten back into a new trading range of, let's say, between 4.25% and 5%, it appears that interest rate volatility should remain relatively low going forward, given we've gotten through all of the quantitative tightening and the dramatic shifts from the Fed. We have stabilization. We have a more accommodative Fed. We have a path for short-term rates that seems to be fairly well telegraphed.

Those things should contribute to lower volatility going forward, at least that's our outlook right now, which should then translate to lower hedge costs on a go-forward state, but market conditions obviously change. One other point that I would make there is that our ability to raise capital -- this is kind of a good tie back to the first question, our ability to raise capital at accretive level is also a potential driver of ex-post returns, which could offset some of that incremental hedge cost that we would occur over time with hedging. But you're 100% right. It would be -- it's going to be a drag.

It's just an order of magnitude. And right now, the outlook is, I think, pretty favorable for that.

Douglas Harter -- Analyst

Great. I appreciate all those answers, Peter. Thank you.

Peter J. Federico -- President and Chief Operating Officer

Sure.

Operator

Thank you. And our next question today comes from Crispin Love with Piper Sandler. Please go ahead.

Crispin Love -- Piper Sandler -- Analyst

Thank you. Good morning, everyone. Just first on the hedge ratio and hedges continuing the recent conversation, but you decreased the hedge ratio meaningfully in the third quarter, but increased it to 91% in the fourth quarter. So one, just curious, when you added more hedges in the quarter.

Was it leading up to the election? And then, just thoughts and views on the hedge ratio today and outlook going into -- kind of continuing through 2025, also with your view of lower vol expected?

Peter J. Federico -- President and Chief Operating Officer

Yes. Thank you for the question. We did increase it obviously, fairly significantly back to 91% from 72%. But it goes back to the question that I just answered as a starting point, which is that we obviously expected more interest rate volatility as we went into the presidential election.

And clearly, there was a lot of uncertainty and still is about fiscal policy and tariffs and what that might mean for monetary policy and what that might mean for treasury issuance. But we had an 80 basis point move higher in the 10-year treasury in the fourth quarter. And the reason why we were so active in rebalancing and kept our duration gap essentially unchanged quarter over quarter, 0.2 to 0.3. And that's not always the case with respect to our delta hedging and our rebalancing.

But we were so active in doing so this quarter is because we didn't expect rates to whipsaw back the other way. From our perspective right now, the backup in rates and particularly in the 10-year, moving up to the 4.5% to 4.75% range appears to be sort of a better valuation for that part of the curve given all of the uncertainty about the strength of the economy and potential sources of inflation or deflation as it may be. But we felt like being active in delta hedging was really important because we don't expect rates to drop materially from here. We expect long-term rates to remain stable.

So therefore, we did add a lot of hedges, and we did so particularly by adding mostly, in fact, almost exclusively treasury-based hedges because of our uncertainty about what swap spreads would do during the quarter. So over time, we may rotate out of those. As Chris indicated, that will likely be the case. But that's why we were so active in rebalancing and keeping our duration gap low because we didn't want -- we didn't expect rates to whipsaw back.

Crispin Love -- Piper Sandler -- Analyst

Great. Appreciate that. And then, just one last question for me. Just an update on Agency MBS demand as you see it today, banks, money managers, just thoughts on demand in this environment.

Peter J. Federico -- President and Chief Operating Officer

Yes. I mentioned in my prepared remarks, the outlook for supply, and I think this is really a positive for the mortgage market. When you think about the outlook and why we're so positive, it starts with the technicals for mortgages. And the technical is that the supply of mortgages in 2025 should be very similar, I'd expect to 2024.

In 2024, the total supply was just a touch over $210 billion, which came in lower or certainly at the low end of everybody's expectations. And with -- and this goes back to the point about the 10-year being at 4.5% or higher. The 10-year being at 4.5% or higher has pushed the 30-year primary mortgage rate back up close to 7%, which means the supply of mortgages as we start this year is likely going to remain on the low end of people's expectations. So I expect the supply of mortgages -- and I think if you look at most dealers, it's in the $200 billion to $250 billion range, which is a positive development.

And then, you look at what are the sources of demand. Last year, I think money managers -- I think there was total inflows into bond fund of around $450 billion, of which maybe 20% of that or so goes into the mortgage market. It appears that that could be again the case in 2025. So I would expect money managers, if bond fund flows stay high, -- and certainly, yesterday, you saw rotation into bonds with equity weakness.

That could clearly be the case. Money managers could demand $50 billion to $80 billion worth of mortgages again. And then, of course, the uncertainty or the unknown in the equation is bank demand. And bank demand has been stable and slowly growing.

Certainly, bank -- total bank holdings of mortgages have increased steadily off the low point of September '23 and now have sort of grown steadily in 2024. There is a possibility with bank regulation being perhaps less onerous that they may come in and be a bigger buyer in 2025 versus 2024. We don't obviously know that yet, but that's something we'll keep an eye on. So I think in the end, when you put that together, I think the supply and demand seems to be fairly well balanced, and that's an important driver of our outlook.

Any follow up there?

Operator

Thank you. I'll move on to our next question. Our next question comes from Trevor Cranston of Citizens JMP. Please go ahead.

Trevor Cranston -- Analyst

Hey. Thanks. Good morning. You guys mentioned that you've been adding toward the end of the quarter and have continued into January.

Assuming that the portfolio additions are increasing leverage, can you talk a little bit about kind of what your current leverage target would be? What the investment opportunities -- where they are today? And part of that, also as you're adding, if you can maybe talk a little bit about if you've seen any sort of changes in your relative value views of TBAs versus spec pools?

Peter J. Federico -- President and Chief Operating Officer

Sure. I'll start with the first part, and then Chris can talk about TBA versus pools and other relative value. So first, when you look at our leverage, it's been fairly consistent, in fact, very consistent over the last 12 months in the 7.2, 7.3 range. And the good news there is we were able to generate really attractive returns with that sort of leverage level.

And with leverage at that level, we obviously still have a huge amount of our capital and unencumbered. As Bernie mentioned, 66% of our capital is unencumbered. So we have a really strong position from a risk management perspective. And when we think about leverage, obviously, there's a lot of drivers.

One, we want obviously, mortgage spreads to be attractive, which they are. We want interest rate volatility to be stable or declining, which we think it may be, which is a positive. And then, we'll just make that decision sort of on a case-by-case basis. But I think one of the key points is when you think about spreads, not only do they need to be attractive, we want them to be stable.

And one of the things that I think materialized in 2024 is the fact that mortgage spreads stayed very -- traded in really a relatively tight range, particularly if you look at like current coupon to five- and 10-year treasuries, they traded in an exceedingly tight range. 80% of the year last year, mortgages traded in a 20 basis point range between 135 and 155 basis points. That's great for our business. We want spread volatility to be low.

We want spreads to be attractive. If those conditions continue, it would make us positively inclined about the market and our risk position. So again, I'm not going to give a forecast on that, but those are the conditions that we look at for taking risk a little higher. And Chris can talk about where we've been deploying proceeds.

As he mentioned, we started to add some mortgages in January.

Christopher Jon Kuehl -- Executive Vice President, Agency Portfolio Investments

Sure. So during the quarter, we continued to shift our holdings to higher coupons. As I mentioned, we reduced holdings in four and a half and lower coupons by about $6 billion, added just under $8 billion and 5% in higher coupons. Production coupon valuations still offer some of the best longer-run risk-adjusted returns.

And while higher coupons performed very well last year, the vast majority of that return was carry, not spread tightening. And so, spreads are still very attractive. And so, that's where we've been allocating marginal capital. The relative value picture across the coupon stack could certainly shift this year if banks are more involved and issuance remains light given where mortgage rates currently are.

But again, given current spread relationships with respect to the coupon stack, marginal capital is going to mostly be deployed in higher coupons. With respect to TBAs versus specified pools, specs generally have performed very well. They did in the fourth quarter. And while we did have some opportunities to add higher quality pools at good levels, there are some newer production categories that are trading at relatively full valuations.

And so, we're content to be patient there and carry a bit higher TBA position with prepayment risk low and roll starting to trade better.

Trevor Cranston -- Analyst

Got it. OK. That's helpful. Thank you.

Peter J. Federico -- President and Chief Operating Officer

Sure.

Operator

And our next question today comes from Eric Hagen of BTIG. Please go ahead.

Peter J. Federico -- President and Chief Operating Officer

Good morning, Eric.

Eric Hagen -- Analyst

Hey. Thanks. Good morning, guys. If we tease apart the projection for prepayment speeds, can you maybe share roughly what mortgage rate you were assuming in that projection and how you might -- and how it's maybe changed in the start of the year? And then, how you might compare or characterize the reinvestment risk that you face with prepays and spreads at these levels versus when speeds have been faster?

Christopher Jon Kuehl -- Executive Vice President, Agency Portfolio Investments

Yes. So our CPR projections are simply based on the spot -- the forward curve as of the end of the year. Just more generally speaking, with respect to prepayment risk, I'd say the fourth quarter was probably the most interesting set of reports that we've had since COVID, October and November, in particular. Mortgage rates approached -- basically hit 6% in September.

We had a pretty sizable portion of the float and higher coupons that had an incentive to refinance and speeds were very fast in October and exceeded most model expectations. But with the sharp sell-off in rates, November speeds then came in materially slower, under most model expectations. And so, it's likely October speeds were impacted by very high pull-through rates. But I'd say even still net-net, when you look at the two months together, the response was the steepest we've had really since COVID.

And so, into a sustained rally, we're certainly not betting on a benign prepayment response. It's clear lenders are going to be very aggressive soliciting easy to refi borrowers. But again, prepayment risk is very manageable through asset selection and diversification. And asset selection doesn't mean just owning the highest quality pools with the most prepayment protection.

In fact, it often doesn't, depending on where pay-ups are valued. It's very impactful to just avoid the worst pools are the fastest collateral. And so, again, active management is key across various rate scenarios.

Eric Hagen -- Analyst

Great color there. I appreciate that. All right. So maybe building off the outlook from the question around banks.

I mean, how do you see the impact of bank regulation maybe driving bank appetite as repo counterparties, both to AGNC and to the market more broadly? I mean, do you have any perspectives on the supply of repo going forward? And really just any impact that could transmit on to mortgage spreads at the same time?

Peter J. Federico -- President and Chief Operating Officer

Yes. So first, on the bank side, again, bank balances have been growing, which is an important fact. Two, it appears that banks -- when they do add, they appear to be adding in an available-for-sale capacity as opposed and hedging more that's just anecdotal versus the held-to-maturity. So that's obviously, I think, a good sign for their ability to add mortgages and do so on a hedge basis and manage their interest rate risk.

And then, clearly, from where we were, let's say, I guess, it was probably in the middle of the year when the Basel end game was so uncertain and there was lots of unintended consequences in some of those earlier versions of that regulation to where we are now, it appears that bank regulation is going to be certainly less onerous and maybe even quiet for a period of time, which I think bodes well for bank demand. So obviously, we don't have any other insight into it than that, but it does seem from a directional perspective that it could be larger as opposed to smaller. With respect to the repo market, as the Fed drains balances -- bank reserve balances out of the system, which they are doing now, there will come a time, and I expect it to be this year where they're going to stop because I think when you look at where bank reserves are now at about $3.2 trillion, I think they're getting into the range of where bank reserves from a target perspective relative to GDP, somewhere in the 10% to 11% range is some of the guidance that the Fed has talked about, not that they are managing to that, but it's certainly an indication. It appears that bank reserves are getting into the target range where they've moved from abundant to ample.

And that's what the Fed is looking for. And the Fed is looking to the repo market for indications of that -- and we are seeing indications of that, meaning that the repo market is now at period ends and reporting periods showing some of the volatility that you would see normally when bank reserves get to that less abundant level. We saw the repo spreads to SOFR over year-end being in the 50 to 100 basis point range. We saw it in the third quarter, we saw it prior to that.

So reporting periods will have some volatility. It will be a little bit higher cost. It's one of the things that contributed to our higher cost relative to our swap book going forward. The Fed is clearly watching this very closely, willing to and have already made changes, which is important changes to the way they run their programs to manage this carefully.

The Fed does not want the funding markets to be disrupted. And I don't expect any limitation from a repo perspective to get to the specific answer that you're talking about. There's plenty of repo capacity for agency mortgage-backed securities. Yes, it may be a few basis points more cost, particularly over reporting periods, but it is a cost question, not a capacity question.

So I don't expect that to be a limiting factor for demand at all.

Eric Hagen -- Analyst

Great stuff. I appreciate the answer. Thanks guys.

Peter J. Federico -- President and Chief Operating Officer

Sure. Thank you.

Operator

Thank you. And our next question today comes from Jason Stewart at Janney. Please go ahead.

Peter J. Federico -- President and Chief Operating Officer

Good morning.

Jason Stewart -- Janney Montgomery Scott -- Analyst

Good morning, Peter. Thanks for the color on earnings. That does good walk through. Bernie, just I missed the point on futures and what that would have added if it was in that spread and dollar roll income on a comparable basis to the quarter.

Peter J. Federico -- President and Chief Operating Officer

Yes. Bernie mentioned that -- I think your question was about treasuries. Is that correct? I didn't hear. Yes.

Bernie mentioned that this last quarter, and we added a page in some disclosure in our back of our presentation, I forget what page it is exactly.

Bernice E. Bell -- Executive Vice President, Chief Financial Officer

It's on Page 24.

Peter J. Federico -- President and Chief Operating Officer

On Page 24, that shows you the sort of the pay side of the equation, what we're paying and where our repo rates were. And if you look at that, we concluded that it was probably around $0.04 of earnings that if we had -- if net spread and dollar roll income included that, it would be something like about $0.04. Obviously, because one of the challenges with that measure is because we use futures, that carry component has to be sort of imputed, if you will. So we had to come up with a methodology that's one of the shortcomings of it.

But nonetheless, to give you an order of magnitude, we think it's in that range of around $0.04 this last quarter.

Jason Stewart -- Janney Montgomery Scott -- Analyst

Got it. And then, were you able to quantify the impact of the ATM timing, so issuing early and deploying later in the quarter?

Peter J. Federico -- President and Chief Operating Officer

Well, what I would say is when you look at the impact of the issuance, I think you can do it in a number of different ways. You can look at our average price -- and the average price, meaning $500 million worth of stock versus $53 million would give you an average price of $9.60 just on that calculation. And you look at that relative to our beginning and ending book value, you can conclude that it was a substantial amount of accretion. You could also look at our comprehensive income and our dividend and conclude based on our book value that it probably contributed something in the neighborhood of $0.06 or so of book value, maybe a little bit more.

And then, as Chris mentioned, there was obviously a lot of volatility and uncertainty early in the quarter. So raising capital at an accretive level and then deploying it more gradually later in the quarter, we obviously saw mortgage spreads widen during the quarter. They peaked around mid-quarter and now are still ended the quarter wider than they were at the beginning. So by deploying those proceeds at a slower pace gave us the capacity to invest, as Chris mentioned, at attractive levels late in the quarter and still at attractive levels this quarter.

Jason Stewart -- Janney Montgomery Scott -- Analyst

OK. All right. We'll make some assumptions on how that impacted earnings. I appreciate it, Peter.

Peter J. Federico -- President and Chief Operating Officer

Sure.

Operator

Thank you. And our final question today comes from Harsh Hemnani with Green Street. Please go ahead.

Harsh Hemnani -- Green Street Advisors -- Analyst

Thank you.

Peter J. Federico -- President and Chief Operating Officer

Good morning, Harsh.

Harsh Hemnani -- Green Street Advisors -- Analyst

Good morning. You mentioned that your base case for spreads is that they remain within the trading range that they have been in for some time. What in your mind are the risks to that base case that could drive spreads either higher from your -- outside that trading range or lower?

Peter J. Federico -- President and Chief Operating Officer

Well, yes, you're right. And they have been remarkably stable. And I think we're going on about seven quarters maybe of this trading range, which I find to be really encouraging. I think mortgages are -- given a little bit of a backup, mortgages in the middle of the range, obviously feels a little bit better to us than being at the tight end of the range.

But I would say that there's probably two primary risks. One is -- relates to monetary policy and interest rates in general. If the interest rates become extremely volatile, meaning if interest rates were to move materially higher than we anticipate or materially lower than we anticipate. Chris mentioned it could trigger refinance activity if they were to rally for some unforeseen reason or we could have interest rates back up because of, for example, concerns about deficit spending and treasury issuance.

Those could put pressure on fixed income broadly, and they could put pressure on mortgage spreads. So that would be one. And then, obviously, all of the discussion, that's why I included the -- in my prepared remarks, the extra discussion about housing policy, if you will, obviously, there is more interest in the GSEs and the GSEs conservatorship today than there was prior to the Trump administration. And so, there is some uncertainty about that outcome.

We believe in the end that all of the great attributes of the current system, I think people will come together and agree that they need to be preserved. I don't think from a political perspective, from a homeownership perspective, from an economic perspective, from a Fed perspective that anybody would conclude that they don't want all of these features that we have today. And then, that means also then if you want to preserve those features, given the size of the market, it's likely that the government is going to have to remain involved. How that's structured to be determined, what they get compensated for that to be determined.

But there could be some uncertainty as people have opinions and ideological differences about that that could create some spread volatility. So spreads may be a little higher than they would otherwise be. They may be a little wider than they otherwise would be, could move us in that range to your question. But in the end, I think they will come back into the range.

And at this spread range, I think mortgages offer a lot of value. They offer value if you're investing in treasury securities and they offer value if you're investing in investment-grade corporate debt, which is not always the case. So mortgages to us look like a great asset class and cheap at this valuation.

Christopher Jon Kuehl -- Executive Vice President, Agency Portfolio Investments

I'll just add. I think Peter covered the -- what could surprise to the wider side. The other side of the equation, I think -- look, to the extent that bank securities growth is much stronger than anticipated. That's a possibility on looser regulatory outlook going forward.

I mean, overseas activity could also surprise to the extent that the Fed and BOJ policy continues to move in opposite directions that reduces FX hedging costs for banks in Japan. And so, look, there's a lot of things that are unknowns and could surprise to the tighter side as well. But again, our base case is pretty firmly rooted and unchanged to maybe modestly tighter spreads for this year.

Harsh Hemnani -- Green Street Advisors -- Analyst

Got it. Thank you. I'll leave it there.

Peter J. Federico -- President and Chief Operating Officer

Thank you.

Operator

Thank you. And this concludes our question-and-answer session. I'd like to turn the call back over to Peter Federico for closing remarks.

Peter J. Federico -- President and Chief Operating Officer

Again, I appreciate everybody participating on the call today. And again, we're encouraged by the outlook for our underlying asset class and for our business in 2025, and we look forward to speaking to you again at the end of next quarter.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Katie Turlington -- Investor Relations

Peter J. Federico -- President and Chief Operating Officer

Bernice E. Bell -- Executive Vice President, Chief Financial Officer

Christopher Jon Kuehl -- Executive Vice President, Agency Portfolio Investments

Peter Federico -- President and Chief Operating Officer

Bose George -- Analyst

Douglas Harter -- Analyst

Doug Harter -- Analyst

Crispin Love -- Piper Sandler -- Analyst

Trevor Cranston -- Analyst

Chris Kuehl -- Executive Vice President, Agency Portfolio Investments

Eric Hagen -- Analyst

Jason Stewart -- Janney Montgomery Scott -- Analyst

Bernie Bell -- Executive Vice President, Chief Financial Officer

Harsh Hemnani -- Green Street Advisors -- Analyst

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