American Capital Agency Corp. (AGNC): A Performance Review

During the first quarter, Capstead Mortgage Corporation (NYSE:CMO) took some benefit from the relatively higher mortgage spreads and increased its net interest rate spread by 2 bps to 1.15%, while the prepayment speeds on its securities held increased 5 bps.

In contrast, CYS Investments Inc (NYSE:CYS) reported a 19 bps sequential decline in its net interest rate spread. Since the spreads are more directly linked to the pace of quantitative easing by the Fed, I believe you should expect a further decrease in its spread in the coming quarters if the Fed increases the pace of its easing.

Conclusion

While the first quarter performance was hurt by higher hedging costs and lower interest income, I believe American Capital Agency Corp. (NASDAQ:AGNC) is set to experience another outstanding quarter. I believe it has already reversed most of the poor first quarter performance, as interest rates have rallied materially since the quarter end and the company has added more prepayment protected paper.

The article American Capital Agency Presents a Buying Opportunity originally appeared on Fool.com and is written by Adnan Khan.

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