Sep. 16 at 5:01 PM
$AGNC Core Transmission Channels of a Rate Hike
Squeezed Net Interest Margin (NIM): AGNC borrows at short-term repo rates to purchase long-term Agency MBS. When short-term interest rates increase, borrowing costs rise immediately. Unless long-term yield spreads widen fast enough to compensate, AGNC's net interest spread contracts, reducing interest earnings.
Book Value Erosion (Net Asset Value): Existing mortgage bond prices fall when interest rates rise. Higher rates decrease the market value of AGNC's fixed-rate Agency MBS holdings, causing a direct drop in Tangible Book Value (TBV) per share.
Impact of High Financial Leverage: AGNC uses financial leverage (historically ~7x–8x) to enhance equity returns.
