Invesco Mortgage Capital (IVR) Q2 FY26 earnings call: guidance and Q&A

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

What is the remaining ATM capacity, and what should investors expect regarding Q3 ATM issuance and capital deployment given current portfolio growth targets?

Management intends to continue ATM issuance in the weeks and quarters ahead, responsibly and close to book value, to reduce fixed costs per share and improve stock liquidity. Capital deployed has been in the higher coupon range (30-year 5s through 6s), with a focus on specified pools due to attractive valuations.

“We'll look to continue to do that to the extent that we can do so responsibly and where it makes sense. Just given the low cost associated with our ATM, we think it's a clear benefit to our stockholders, continue focus around looking to reduce our fixed cost per share and improve liquidity in our stock to the extent that we can.”

asked by Ameeta Lobo Nelson · answered by Kevin Collins

What is driving the significant improvement in dollar roll financing for 6% coupons, as shown on Slide 6?

The significant squeeze on 6% coupon dollar roll financing at quarter-end was unusual, likely due to strong supply/demand technicals and participation from CMO desks or a large money manager. While it has bounced back, dollar roll financing remains attractive in higher coupons.

“That coupon tends to be one that CMO desks participate in the most to create floaters and inverse IO and those kind of things. So I think in particular, maybe there was a large money manager or something of that nature, putting a bit of a squeeze on that coupon, but it has bounced back to a more reasonable level.”

asked by Trevor Cranston · answered by Brian Norris

What are the expectations for the yield curve and interest rates under the new Fed Chair, and how might this impact the hedging strategy?

The house view is that the Fed will be on hold, but geopolitical risks introduce uncertainty, with a chance of a hike in H2 2026. Volatility, especially in the front end, is expected to increase, which is a headwind for agency mortgages. The hedge ratio remains high at 97% due to this uncertainty.

“our house view is that the Fed will be on hold in monetary policy for the foreseeable future. But I think also the kind of the renewed geopolitical risks that we've seen over the last few weeks could or does make that outlook a bit more cloudy than it otherwise would have been. So there's certainly a chance that there could be a hike in the latter half of 2026.”

asked by Douglas Harter · answered by Brian Norris

How is the EAD run rate expected to evolve given potential swap roll-off, and how far out does the Board look when setting dividend policy?

The dividend is evaluated quarterly in context to current and expected EAD, portfolio composition, and market opportunities. The current dividend is competitive, in line with long-term levered Agency MBS returns, and well covered by EAD, supported by the long-term earnings power of the portfolio.

“we're evaluating that each quarter based on current earnings as well as expected earnings, our portfolio composition and market opportunities. So just to get out in front of it, I do think at present, we believe our dividend is competitive. It's in line with long-term levered Agency MBS returns, which we talked about being important for us. It's also well covered at this point by the EAD.”

asked by Jason Weaver · answered by Kevin Collins

If the Fed is on hold, leading to a steeper curve and higher mortgage rates, how does this affect premium at risk in specified pools, and which subsectors are being focused on or avoided?

Management agrees that a Fed 'on hold' stance would likely lead to yield curve steepening. While specified pool pay-ups could soften, this creates compelling opportunities to add exposure. They prioritize specified pools with lower loan balances and diversify across collateral stories like geography, high LTV, low FICO, and first-time homebuyer segments, avoiding generic collateral due to increased refinance susceptibility.

“Our weighted average payups at quarter end was about [ 28 ]-- so that equates to about $50 million of market value. So that -- if they all went to 0, that's about the impact would be. But I think this kind of also goes into kind of what we've talked about in the past about the deliverability of generic collateral and the value of specified pools.”

asked by Jason Stewart · answered by Brian Norris