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    IVR
    Earnings call· Jun 2026(Q2 FY26)

    Invesco Mortgage Capital Q2 FY26 earnings call IVR

    Jul 31, 2026 Source

    Executive summary

    Invesco Mortgage Capital Inc. Q2 FY26 — Strong Portfolio Performance Amid Market Volatility

    Invesco Mortgage Capital delivered a solid Q2 FY26, marked by a 3.8% economic return and significant portfolio growth, despite a slight book value decline. The company capitalized on attractive agency mortgage market opportunities through ATM issuance, enhancing scale and liquidity. Management remains focused on disciplined investment and risk management, navigating market uncertainties with a high hedge ratio and ample liquidity, while maintaining a competitive and well-covered dividend.

    Highlights

    5

    • Generated an economic return of 3.8% for Q2 FY26.

    • Investment portfolio increased 12.4% quarter-over-quarter to $8.2 billion, driven by ATM issuance.

    • Raised $118 million in Q2 and over $250 million year-to-date through ATM, enhancing scale and operating efficiency.

    • Maintained significant liquidity with $548.3 million in unrestricted cash and unencumbered investments, equating to 55% of total equity.

    • Higher coupon Agency RMBS and Agency CMBS performed well, supported by attractive carry and contracting risk premiums.

    Concerns

    5

    • Book value per share declined modestly by 0.6% in Q2 FY26, with an estimated quarter-to-date decline of roughly 2.5%.

    • Earnings available for distribution (EAD) declined to $0.50 in Q2 FY26 from $0.55 in Q1 FY26.

    • The 30-year mortgage rates near 6.5% at quarter end further limited housing activity due to affordability challenges.

    • Modest widening of mortgage spreads by 7 basis points since quarter end, reflecting potential increased volatility.

    • Net economic investment spread is vulnerable to additional swap roll-off in the coming quarters.

    Guidance & targets

    3
    CategoryTargetConfidence
    Fed Monetary Policy Stance
    On hold for the foreseeable future
    medium materiality
    Medium
    Fed Monetary Policy Hike
    Chance of a hike
    low materiality
    Low
    Volatility in Front End
    Will increase or has increased
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Agency RMBS
    Agency RMBS investments performed well, driven by attractive carry and contracting risk premiums. Higher coupon Agency RMBS outperformed relative to U.S. treasuries. Net supply remained muted with broad-based investor demand.
    Investment Portfolio: $6 billion
    		————
    Agency TBA
    Agency TBA investments performed well. The dollar roll market for higher coupon Agency TBAs benefited from favorable technical conditions, with implied financing rates remaining below 1-month SOFR.
    Investment Portfolio: $1.2 billionAllocation: 14.7% (down from 16.9% QoQ)Levered Gross Returns: high teens
    		————
    Agency CMBS
    Agency CMBS continued to provide notable stability, supported by attractive relative valuations and predictable cash flows. Spreads tightened modestly, performing in line with lower coupon Agency RMBS. Offers benefits through inherent prepayment protection and fixed maturities.
    Investment Portfolio: $0.9 billionAllocation: 11.1% (down from 11.9% QoQ)Levered Gross Returns: low double digits
    		————

    Operational metrics

    30
    Economic return
    3.8%
    Q2 FY26

    Company-wide economic return for the quarter.

    Monthly dividends
    $0.12
    Q2 FY26

    Monthly dividend paid per share during the quarter.

    Book value per share decline
    0.6%
    Q2 FY26

    Modest decline in book value per share for the second quarter.

    Estimated book value quarter-to-date decline
    2.5%
    Q3 FY26 (quarter-to-date)

    Estimated decline in book value per share quarter-to-date for Q3 FY26.

    Economic debt-to-equity ratio
    unchanged
    Q2 FY26 end

    Economic debt-to-equity ratio remained stable at quarter end.

    Investment portfolio
    $8.2 billion
    Q2 FY26 end

    Total investment portfolio at the end of the second quarter.

    Unrestricted cash and unencumbered investments
    $548.3 million
    Q2 FY26 end

    Sizable balance of unrestricted cash and unencumbered investments.

    Earnings available for distribution (EAD)
    $0.50down from $0.55 in Q1 FY26
    Q2 FY26

    Earnings available for distribution declined quarter-over-quarter.

    Hedged borrowing costs
    97%
    Q2 FY26 end

    Percentage of borrowing costs hedged with interest rate swaps and U.S. treasury futures.

    Capital raised via ATM
    $118 millionover $250 million year-to-date
    Q2 FY26

    Capital raised through the At-The-Market (ATM) program.

    Investment portfolio growth
    12.4%QoQ
    Q2 FY26

    Quarter-over-quarter increase in the investment portfolio.

    Prepayment protection allocation
    nearly 85%
    Q2 FY26 end

    Allocation of the portfolio to securities with prepayment protection via specified pools and Agency CMBS.

    Levered gross returns (higher coupon specified pools)
    mid- to high-teenshigh teens as of today
    Q2 FY26

    Returns on higher coupon specified pools.

    Current coupon spread to SOFR blend
    143150 bps as of today
    Q2 FY26 end

    Spread of current coupon to the 5- and 10-year SOFR blend.

    Agency TBA allocation
    14.7%down from 16.9%
    Q2 FY26 end

    Allocation of the portfolio to Agency TBA.

    Agency CMBS allocation
    11.1%down from 11.9%
    Q2 FY26 end

    Allocation of the portfolio to Agency CMBS.

    Levered gross returns (Agency TBA)
    high teens
    Q2 FY26

    Returns on Agency TBA, with implied financing rates near or below 1-month repo rates.

    Levered gross returns (Agency CMBS)
    low double digits
    Q2 FY26

    Returns on Agency CMBS, consistent with lower coupon Agency RMBS.

    Repurchase agreements
    $6.2 billionup from $5.3 billion
    Q2 FY26 end

    Repurchase agreements collateralized by Agency RMBS and Agency CMBS investments.

    Hedge notional
    $6 billionup from $4.9 billion
    Q2 FY26 end

    Total notional value of hedges.

    Hedge composition (swaps)
    79%
    Q2 FY26 end

    Composition of the hedge book weighted towards interest rate swaps.

    Swap spreads
    2 to 4widened
    Q2 FY26

    Widening of swap spreads during the quarter, serving as a modest tailwind.

    Duration gap
    0.25 yearreduced from 0.5 year
    Q2 FY26 end

    Reduction in duration gap reflecting a more cautious stance on interest rates.

    Leverage (debt to common equity)
    9x
    Q2 FY26 end

    Current leverage level, viewed as appropriate in the current environment.

    2-year breakeven inflation
    2%fell from 3.25% at Q1 FY26 end
    Q2 FY26 end

    Decline in 2-year breakeven inflation.

    30-year mortgage rates
    6.5%
    Q2 FY26 end

    30-year mortgage rates near their highest levels since early 2025.

    Net supply Agency RMBS
    $81 billionmuted
    YTD through June

    Year-to-date issuance of Agency RMBS.

    GSE retained portfolio capacity
    $100 billion
    Q2 FY26 end

    Additional capacity under Fannie Mae and Freddie Mac's portfolio caps.

    Weighted average payups
    28
    Q2 FY26 end

    Weighted average payups for specified pools.

    Market value impact of payups going to zero
    $50 million
    Q2 FY26 end

    Estimated market value impact if all specified pool payups were to go to zero.

    Industry KPIs

    2
    MetricValueDetails
    Investment volume closed$8.2BUSD
    Ffo core ffo normalized ffo per share$0.50USD/share

    Risks & headwinds

    6
    Geopolitical developmentsOngoing

    Unquantified

    Mitigation: Maintained high hedge ratio (97%), ample liquidity ($550M cash/unencumbered investments).

    Shifting expectations for monetary policyNear-term to H2 2026

    FOMC's next move could be a hike rather than a cut; 2-year treasury rates rose nearly 40 bps, 10-year rose 15 bps (Q2).

    Mitigation: Reduced duration gap from ~0.5 year to ~0.25 year; maintained high hedge ratio (97%).

    Higher interest rates and restrictive monetary policyOngoing

    30-year mortgage rates near 6.5% at quarter end.

    Mitigation: Focus on Agency CMBS for stability and low sensitivity to interest rates; prioritizing income protection in portfolio.

    Interest rate volatilityNear-term

    Increased volatility expected, particularly in the front end; mortgage spreads widened 7 bps since Q2 end, potential to reach 160s bps.

    Mitigation: High hedge ratio (97%); ample liquidity ($550M cash/unencumbered investments); focus on specified pools for prepayment protection.

    Affordability challenges limiting housing activityOngoing

    30-year mortgage rates near 6.5% at quarter end.

    Mitigation: Diversifying portfolio across Agency RMBS, TBA, and CMBS; focusing on specified pools with lower loan balances and first-time homebuyer stories.

    Net economic investment spread vulnerabilityNext several quarters

    Vulnerable to additional swap roll-off.

    Mitigation: Evaluating dividend each quarter in context to EAD, portfolio composition, and market opportunities; belief that dividend is supported by long-term earnings power.

    What to watch in Q3 FY26

    5

    ATM Issuance Pace

    Weeks ahead and quarters ahead (Q3/Q4 FY26)
    Current$118M in Q2, >$250M YTD
    TargetContinued issuance at levels close to book value

    Why it matters

    Continued ATM issuance enhances scale, operating efficiency, reduces expenses per share, and improves stock liquidity, supporting long-term shareholder value.

    We'll look to continue to do that to the extent that we can do so responsibly and where it makes sense.

    Q&A highlights

    6

    What were the primary factors contributing to the 0.6% book value decline in Q2, including spread moves, hedge performance, and ATM issuance impact?

    The slight book value decline was attributed to a modestly positive duration gap, which was a slight detractor as interest rates rose, and a minor impact from the flattening yield curve. ATM issuance had a modest impact as it was done close to par.

    “I think our slight book value decline can be attributed to a couple of different factors. We have a modestly positive duration gap, which served -- which as interest rate growth on the quarter was a little bit of slight detractor. And then also maybe the modest flattening of the yield curve also had a minor impact on portfolio.”

    asked by Ameeta Lobo Nelson · answered by Brian Norris

    2 min read5 chapters

    Detailed Narrative

    01

    Q2 Performance and Portfolio Highlights

    Invesco Mortgage Capital reported a 3.8% economic return for Q2 FY26, with monthly dividends of $0.12 per share. The investment portfolio grew 12.4% quarter-over-quarter to $8.2 billion, primarily funded by ATM issuance. Despite a modest 0.6% decline in book value per share for the quarter, the company maintained a stable economic debt-to-equity ratio and a high hedge ratio of 97% for borrowing costs.

    02

    Market Developments and Outlook

    The second quarter saw improving financial conditions, resilient economic growth, and moderating inflation expectations, despite a bear-flattening of the U.S. treasury yield curve. Higher coupon Agency RMBS outperformed, and Agency CMBS provided stability. The company remains constructive yet measured in its outlook, citing compelling valuations, favorable supply/demand dynamics, and potential de-escalation of geopolitical tensions as supportive factors for its investment strategy in H2 2026.

    03

    Capital Activities and Shareholder Value

    The company raised approximately $118 million in Q2 and over $250 million year-to-date through its ATM program. This capital infusion significantly expanded the investment portfolio, improved operating efficiency, and reduced per-share expenses. Management believes this growth enhances scale, improves stock liquidity, and broadens investor appeal, supporting long-term shareholder value.

    04

    Hedge Strategy and Risk Management

    Invesco Mortgage Capital maintained a high hedge ratio of 97% for its borrowing costs, with 79% of hedges in interest rate swaps on a notional basis. The duration gap was reduced from approximately 0.5 year to 0.25 year, reflecting a more cautious stance on interest rates. The company emphasizes its robust liquidity position of $550 million in cash and unencumbered investments, providing a cushion against market stress and flexibility for opportunities.

    05

    Agency MBS Market Dynamics

    Net supply in Agency RMBS remained muted at $81 billion year-to-date through June, met by broad-based investor demand. Dollar roll market for higher coupon Agency TBAs benefited from favorable technical conditions. Specified pool pay-ups softened, creating attractive opportunities for adding exposure, particularly in 30-year 4.5% to 6% coupons, with nearly 85% of the portfolio allocated to securities with prepayment protection.

    AI-generated summary of the company’s earnings call. Not investment advice.