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Summary

  • I am projecting AGNC’s derivative portfolio to have a total net valuation gain (loss) of ($550) million through the week ending 2/14/2014.
  • I am projecting MTGE’s derivative portfolio to have a total net valuation gain (loss) of ($65) million through the week ending 2/14/2014.
  • I am projecting AGNC’s book value was $25.32 per share as of 2/14/2014; $25.25 as of 2/21/2014; $25.85 as of 2/28/2014; and $25.38 as of 3/7/2014.
  • I am projecting AGNC’s stock price was trading at a premium (discount) to CURRENT BV of (13.57%) as of 3/7/2014.

Author's Note: PART 3 of this article is a continuation from PART 2, which was discussed in a previous publication. PART 2 of this article was a continuation from PART 1, which was also discussed in a previous publication. Please see PART 1 of this article for a composition and valuation analysis of American Capital Agency Corp.'s (NASDAQ:AGNC) MBS portfolio. Please see PART 2 of this article for a composition analysis of AGNC's derivative portfolio. PART 1 and PART 2 helps lead to a better understanding of the topics and analysis that will be discussed in PART 3. The links to PART 1's and PART 2's analysis are provided below:

American Capital Agency's Mid-Q1 2014 Composition And Valuation Analysis - Part 1

American Capital Agency's Mid-Q1 2014 Composition And Valuation Analysis - Part 2

This three-part article is a very detailed look at AGNC's MBS and derivative portfolios. I perform this detailed analysis for readers who anticipate/want such an analysis performed each quarter. For readers who just want the summarized conclusions/results, I would suggest to scroll down to the "Conclusions Drawn" section at the bottom of each part of the article.

Focus of PART 3 of Article:

The focus of PART 3 of this article is to provide a mid-first quarter of 2014 update on AGNC regarding the valuation of the company's derivative portfolio. I feel this mid-quarter update will provide readers a general direction on how the first-half of the first quarter of 2014 has panned out regarding AGNC's derivative strategy. PART 3 of this article will mainly focus on a detailed valuation analysis of AGNC's derivative portfolio through the week ending 2/14/2014. This will also help readers understand how the second-half of the current quarter could pan out as interest rates fluctuate.

In conjunction with PART 3's valuation analysis, specific swap rates and U.S. Treasury yields will be analyzed and discussed. This information will assist when projecting a valuation of AGNC's derivative portfolio through the week ending 2/14/2014. At the end of this article, AGNC's projected book value ('BV') per share as of 2/14/2014 will also be provided. A projected BV per share amount as of 2/21/2014, 2/28/2014, and 3/7/2014 will also be provided to shed more light on AGNC's ongoing CURRENT BV throughout the current quarter.

2) AGNC's Derivative Portfolio - Valuation Analysis (Through the First-Half of the First Quarter of 2014):

Using PART 2's composition analysis as a reference, we can now begin the valuation analysis of AGNC's derivative portfolio through the week ending 2/14/2014. This valuation analysis will be performed on the following four main sub-accounts that make up a majority of AGNC's derivative portfolio: a) TBA MBS and forward settling MBS; b) interest rate swaps; c) interest rate swaptions; and d) U.S. Treasury securities (which includes three secondary sub-accounts).

a) TBA MBS and Forward Settling MBS (Net Long Position as of 12/31/2013):

Having established the composition of AGNC's TBA MBS and forward settling MBS portfolio in PART 2 of this article, we can now begin this derivative sub-account's valuation analysis. Both quarterly realized and unrealized valuation changes and dollar roll income (expense) associated with AGNC's TBA MBS and forward settling MBS portfolio are recognized in the "gain (loss) on derivative instruments and other securities, net" account within the income statement.

For the sake of reducing redundancy within PART 3 of this article, I would refer readers to PART 1 of this article regarding specific fixed-rate agency MBS price movements for 15-year (Table 3) and 30-year (Table 4) holdings across the various coupon rates. Table 3 and Table 4 broke out the MBS price movements by government sponsored entity ('GSE'). This included both Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) MBS. As was the case with AGNC's MBS portfolio in PART 1 of this article, these same two tables are the "cornerstone" of providing accurate valuation projections for AGNC's TBA MBS and forward settling MBS portfolio.

Using Table 3 and Table 4 from PART 1 of this article as a reference, along with making several assumptions regarding the intra-quarter changes within this derivative sub-account, Table 14 below shows AGNC's weekly and cumulative quarterly projected valuation gain (loss) on the company's TBA MBS and forward settling MBS portfolio through the week ending 2/14/2014.

Table 14 - AGNC Weekly and Cumulative Quarterly TBA MBS and Forward Settling MBS Valuation Gain (Loss) (Through the Week Ending 2/14/2014)

(click to enlarge)

(Source: Table created entirely by myself, partially using data obtained from AGNC's SEC filed Form 10-K; Annual Report for 2013)

Regarding AGNC's net long (short) TBA MBS and forward settling MBS position of $2.1 billion as of 12/31/2013, I am projecting a net valuation gain (loss) of $35 million through the week ending 2/14/2014 (see first blue reference "A" in Table 14 above). This figure is combining both realized and unrealized net valuation gains (losses). As stated in PART 1 of this article, since mortgage interest rates/U.S. Treasury yields have modestly decreased through the week ending 2/14/2014 when compared to rates/yields seen at the end of 2013, a net long TBA MBS and forward settling MBS position should have a net valuation gain.

Side Note: I feel when projecting a company's intra-quarter accounting figures, all typical quarterly income and expenses should be projected over the entire quarter versus a proportional "breakout" based on the number of days that have elapsed during the quarter. However, regarding asset valuations, certain conversions/settlements or purchases/sales only occur during a specified "point-in-time" during the quarter. As such, when specifically interpreting this methodology to AGNC's TBA MBS and forward settling MBS portfolio, I project the company's quarterly dollar-roll income (expense) through the entire quarter versus a proportional breakout. In contrast, I project the quarterly net valuation gain (loss) of AGNC's TBA MBS and forward settling MBS portfolio at a specified point in time (typically on a weekly basis). This way, when projecting the remainder of the quarter, only specified point-in-time valuation adjustments are taken into consideration and updated accordingly. My quarterly projected income and expense figures are only updated if the underlying assumptions I originally used at the beginning/mid-point of the quarter need to be changed/updated. Regarding this specific derivative sub-account, if I feel the need to change AGNC's quarterly dollar-roll income (expense) account (due to a material change to the underlying assumptions of the company's TBA MBS and forward settling MBS portfolio), then I make a "true-up" or "true-down" adjustment accordingly.

During the fourth quarter of 2013, AGNC maintained the company's proportion of 15 and 30-year fixed-rate agency MBS holdings (when including TBA MBS and forward settling MBS positions). AGNC also continued to re-roll the company's MBS portfolio into higher coupons within the same maturities. As such, I am making the assumption AGNC will continue to hold a minor to modest net long TBA MBS and forward settling MBS position through the week ending 2/14/2014. I am also assuming management will continue to pursue a net (short) position within AGNC's lower-coupon TBA MBS holdings and a net long position within the company's higher-coupon TBA MBS holdings.

As mentioned in PART 2 of this article, as overall mortgage interest rates/U.S. Treasury yields decrease, AGNC should maintain a net long position within this derivative sub-account to have a net valuation gain (thus mitigating an interest rate swap/swaption net valuation loss). When AGNC is in a net long TBA MBS and forward settling MBS position, it generates dollar-roll income as opposed to a dollar-roll (expense) when in a net (short) position. As such, AGNC's projected quarterly dollar-roll income (expense) should modestly increase during the first quarter of 2014 when compared to the prior quarter.

Using Table 14 above as a reference, when combining AGNC's quarterly dollar-roll income (expense) and intra-quarter valuation gains (losses), I am projecting a net valuation gain (loss) of $20 million through the week ending 2/14/2014 (see second blue reference "A" in Table 14 above). I would note this is a fairly cautious projection.

Therefore, when combining both blue references together, I am projecting AGNC's TBA MBS and forward settling MBS sub-account to have a net valuation gain (loss) of $55 million through the week ending 2/14/2014. This incorporates all long (short) TBA MBS and forward settling MBS positions as of 12/31/2013 including assumptions regarding quarterly "re-rolls," conversions/settlements, and sales (if applicable).

b) Interest Rate Swaps (Net (Short) Position as of 12/31/2013):

Having established the composition of AGNC's interest rate swaps in PART 2 of this article, we can now begin this derivative sub-account's valuation analysis. As was the case with AGNC's TBA MBS and forward settling MBS portfolio, quarterly realized and unrealized interest rate swap valuation changes are recognized in the "gain (loss) on derivative instruments and other securities, net" account within the income statement.

AGNC's interest rate swaps are typically derived from the "over-the-counter" ('OTC') market and may be "centrally cleared" through a registered commodities exchange. AGNC values these centrally cleared interest rate swaps using the daily settlement prices determined by the corresponding OTC market/exchange. The OTC market/exchange typically uses a pricing model that incorporates underlying swap rates, overnight index swap rates, and forward LIBOR percentages to produce daily settlement prices. In some instances, AGNC may also have "non-centrally cleared" interest rate swaps. AGNC values the company's non-centrally cleared swaps using a combination of inputs from counterparties and independent pricing models to estimate the net present value ('NPV') of the future cash flows of the swap using a forward interest rate yield curve in effect as of the end of the measurement period. This includes any adjustments due to the potential "non-performance" of a particular counterparty holding the interest rate swaps (if applicable; non-performance risk).

It should be noted a projected quarterly net valuation gain (loss) within AGNC's interest rate swaps account can also be manually performed if one has the expertise to perform such a calculation and certain variables and interest rate swap rates are known. These manual calculations are a great tool to understand when comparing results to the various model projections. One key piece of information to obtain to begin a proper valuation of an interest rate swap is the weekly and cumulative quarterly net change of the fixed rate payer side of the swap.

Table 15 - Weekly and Cumulative Quarterly Interest Rate Swap Rates (Fixed Rate Payer Side of Swap) (Through the Week Ending 2/14/2014)

(click to enlarge)

(Source: Table created entirely by myself, using privately-assessed interest rate swap data from my company's intranet resources [courtesy of Thomson Reuters])

Side Note: Since the weekly and cumulative quarterly net change to 3-month LIBOR had been immaterial through the week ending 2/14/2014 (what the receiver side of the swap is currently based on), a discussion on the net change of the receiver side of the interest rate swap will be omitted from this analysis. This includes the omission of a LIBOR table since 3-month LIBOR had only moved 1 basis point ('bp') during the first-half of the first quarter of 2014.

Using Table 15 above as a reference, one can see as the tenor (or maturity) of an interest rate swap increased, the rate paid by the fixed rate payer increased as well. For instance, as of 12/31/2013, the rate paid by the fixed rate payer on a 7-year interest rate swap was 2.47% while the rate increased to 3.09% on a 10-year interest rate swap.

Through the week ending 2/14/2014, the cumulative quarterly rate paid by the fixed rate payer had decreased regardless of tenor (severity of decrease based on the maturity of the interest rate swap). For instance, the rate paid by the fixed rate payer on a 3-year interest rate swap had decreased 5 bps through the week ending 2/14/2014 while the rate paid by the fixed rate payer on a 7-year interest rate swap had decreased 20 bps. These subtle changes may not seem like a material difference. However, the 3-year swap had a minor quarterly valuation loss while the 7-year swap had a modest to material quarterly valuation loss. Since AGNC had a net (short) interest rate swaps position of ($43.3) billion as of 12/31/2013, even subtle weekly and cumulative quarterly basis point movements cause material shifts to valuations.

Table 16 below shows AGNC's weekly and cumulative quarterly projected valuation gain (loss) on the company's interest rate swaps through the week ending 2/14/2014. These weekly and cumulative quarterly projected valuation changes include making several assumptions regarding AGNC's interest rate swap additions, expirations, and terminations during the current quarter.

Table 16 - AGNC Weekly and Cumulative Quarterly Interest Rate Swap Valuation Gain (Loss) (Through the Week Ending 2/14/2014)

(click to enlarge)

(Source: Table created entirely by myself, partially using data obtained from AGNC's SEC filed Form 10-K; Annual Report for 2013 [link provided below Table 14])

Using Table 16 above as a reference, I am projecting AGNC's interest rate swaps to have a net valuation gain (loss) of ($320) million through the week ending 2/14/2014 (see first blue reference "B" in Table 16 above). However, as mentioned in PART 2 of this article, AGNC also needs to account for the company's "net periodic interest costs of interest rate swaps" expense. This is currently the net expense (fixed rate paid less floating/variable rate received) AGNC is paying on the company's interest rate swaps. Through a valuation table not shown within this analysis, I am projecting AGNC will record a net periodic interest cost of interest rate swaps income (expense) of ($110) million (see second blue reference "B" in Table 16 above). I am also projecting AGNC's interest rate swaps within the Markit IOS total return swap index to have a net valuation gain (loss) of ($5) million through the week ending 2/14/2014 (see third blue reference "B" in Table 16 above).

Therefore, when combining these three blue references together, I am projecting AGNC's interest rate swaps sub-account to have a net valuation gain (loss) of ($435) million through the week ending 2/14/2014.

c) Interest Rate Swaptions (Net (Short) Position as of 12/31/2013):

Having established the composition of AGNC's interest rate swaptions in PART 2 of this article, we can now begin this derivative sub-account's valuation analysis. As was the case with AGNC's TBA MBS and forward settling MBS portfolio and interest rate swaps, quarterly realized and unrealized interest rate swaption valuation changes are recognized in the "gain (loss) on derivative instruments and other securities, net" account within the income statement.

As a reminder, interest rate swaptions are basically options to enter into underlying interest rate swap contracts. Whereas interest rate swap contracts have no initial "up-front" costs (gains and losses are incurred as interest rates fluctuate over the life of the swaps), interest rate swaptions have implicit upfront costs (similar to an option contract; generally speaking).

AGNC's interest rate swaptions are valued using a combination of inputs from counterparties and independent pricing models based on the FMV of the underlying interest rate swaps. An additional calculation based on the remaining length of the option needs to be performed as well. This includes any adjustments due to the potential "non-performance" of a particular counterparty holding the option (if applicable; non-performance risk). If an interest rate swaption expires unexercised, the realized loss on this derivative instrument would be the upfront cost paid on the creation/addition of the swaption. If AGNC sells or exercises an interest rate swaption, the realized gain (loss) would be the difference between the FMV of the underlying interest rate swap and the upfront cost paid on the creation/addition of the swaption.

It should be noted a projected quarterly net valuation gain (loss) within AGNC's interest rate swaptions account can also be manually performed if one has the expertise to perform such a calculation and certain variables and interest rate swap rates are known. These manual calculations are a great tool to understand when comparing results to the various model projections. As was the case with AGNC's interest rate swaps, one key piece of information to obtain to begin a proper valuation of an interest rate swaption is the weekly and cumulative quarterly net change of the fixed rate payer side of the underlying interest rate swap.

Table 17 below shows AGNC's weekly and cumulative quarterly projected valuation gain (loss) on the company's interest rate swaptions through the week ending 2/14/2014. These weekly and cumulative quarterly projected valuation changes include making several assumptions regarding AGNC's interest rate swaption additions, exercises, expirations, and terminations during the current quarter.

Table 17 - AGNC Weekly and Cumulative Quarterly Interest Rate Swaption Valuation Gain (Loss) (Through the Week Ending 2/14/2014)

(click to enlarge)

(Source: Table created entirely by myself, partially using data obtained from AGNC's SEC filed Form 10-K; Annual Report for 2013 [link provided below Table 14])

Using Table 17 above as a reference, I am projecting AGNC's interest rate swaps to have a net valuation gain (loss) of ($105) million through the week ending 2/14/2014 (see first blue reference "C" in Table 17 above). However, as mentioned in PART 2 of this article, AGNC also needs to account for the company's costs in relation to all interest rate swaption additions, exercises, expirations, and terminations during the current quarter. Since AGNC had ($9.4) billion of interest rate swaptions set to expire in 1 year or less, I am projecting the company acquired ($1.0) billion of interest rate swaptions (based on the notional value of the underlying interest rate swaps) at an initial cost of ($20) million. I am also projecting AGNC exercised, had expired, or terminated $2.5 billion of interest rate swaptions for a net valuation gain (loss) of ($30) million. These two combined figures result in a projected net valuation gain (loss) of ($50) million through the week ending 2/14/2014 (see second blue reference "C" in Table 17 above).

Therefore, when combining both blue references together, I am projecting AGNC's interest rate swaptions sub-account to have a net valuation gain (loss) of ($155) million through the week ending 2/14/2014.

d) U.S. Treasury Securities (Net Long Position as of 12/31/2013):

Having established the composition of AGNC's U.S. Treasury securities (including the three secondary sub-accounts) in PART 2 of this article, we can now begin this derivative sub-account's valuation analysis. As was the case with AGNC's TBA MBS and forward settling MBS portfolio, interest rate swaps, and interest rate swaptions, quarterly realized and unrealized U.S. Treasury security valuation changes are recognized in the "gain (loss) on derivative instruments and other securities, net" account within the income statement.

AGNC purchases (or sells short) U.S. Treasury securities and U.S. Treasury security futures to help mitigate the potential impact of changes in mortgage interest rates (hence the valuation of the company's MBS portfolio). AGNC borrows securities to cover (short sales) of U.S. Treasury securities under reverse repo agreements. AGNC accounts for these derivative instruments as "security borrowing transactions" and recognizes an obligation to return the borrowed securities at FMV based on the current value of the underlying borrowed securities.

It should be noted a projected quarterly net valuation gain (loss) within AGNC's U.S. Treasury securities account can also be manually performed if one has the expertise to perform such a calculation and certain variables, U.S. Treasury yields, and short-term repo loan rates are known. One key piece of information to obtain to begin a proper valuation of a U.S. Treasury security is the weekly and cumulative quarterly net yield change on the various U.S. Treasury security maturities.

Table 18 - Weekly and Cumulative Quarterly U.S. Treasury Security Yields (Through the Week Ending 2/14/2014)

(click to enlarge)

(Source: Table created entirely by myself, using privately-assessed U.S. Treasury securities data from my company's intranet resources [courtesy of Thomson Reuters; link provided below Table 15])

Using Table 18 above as a reference, one can see as the maturity of a U.S. Treasury security increased, the yield increased as well. For instance, as of 12/31/2013, the yield obtained on a 5-year U.S. Treasury security was 1.75% while the yield increased to 3.04% on a 10-year U.S. Treasury security.

Through the week ending 2/14/2014, the cumulative quarterly yield change on a U.S. Treasury security decreased regardless of maturity (severity of decrease based on the maturity of the U.S. Treasury security). For instance, the yield on a U.S. Treasury security with a 5-year maturity decreased 22 bps through the week ending 2/14/2014 while the yield on a U.S. Treasury security with a 10-year maturity decreased 29 bps. These subtle changes may not seem like a material difference. However, these cumulative quarterly yield changes can materially impact valuations through the various U.S. Treasury security maturities.

Table 19 below shows AGNC's weekly and cumulative quarterly projected valuation gain (loss) on the company's U.S. Treasury securities through the week ending 2/14/2014. These weekly and cumulative quarterly projected valuation changes include making several assumptions regarding AGNC's U.S. Treasury security additions and settlements during the current quarter.

Table 19 - AGNC Weekly and Cumulative Quarterly U.S. Treasury Securities Valuation Gain (Loss) (Through the Week Ending 2/14/2014)

(click to enlarge)

(Source: Table created entirely by myself, partially using data obtained from AGNC's SEC filed Form 10-K; Annual Report for 2013 [link provided below Table 14])

Using Table 19 above as a reference, I am projecting AGNC's U.S. Treasury securities to have a net valuation gain (loss) of ($20) million through the week ending 2/14/2014 (see first blue reference "D" in Table 19 above). However, AGNC also needs to account for the company's quarterly interest income (expense) derived from all long (short) U.S. Treasury security positions. I am projecting quarterly net interest income (expense) of $5 million through the week ending 2/14/2014 (see second blue reference "D" in Table 19 above). Both projected figures above take into account all intra-quarter U.S. Treasury security additions and settlements through the week ending 2/14/2014.

Therefore, when combining both blue references together, I am projecting AGNC's U.S. Treasury securities sub-account to have a net valuation gain (loss) of ($15) million through the week ending 2/14/2014.

When combining these four main derivative sub-accounts together, I am projecting AGNC's derivative portfolio to have a total net valuation gain (loss) of ($550) million through the week ending 2/14/2014. Having performed a valuation analysis on AGNC's derivative portfolio through the week ending 2/14/2014, let us briefly discuss my projected valuations for American Capital Mortgage Investment Corp.'s (NASDAQ:MTGE) derivative portfolio through the same timeframe.

Brief Discussion of MTGE's Derivative Portfolio - Valuation Analysis (Through the First-Half of the First Quarter of 2014):

As was initially highlighted within PART 2 of this article, AGNC's and MTGE's derivative portfolio continued to be pretty similar as of 12/31/2013. One modest difference between AGNC's and MTGE's derivative portfolio was the composition of each company's TBA MBS and forward settling MBS position as of 12/31/2013. AGNC held a net long (short) TBA MBS and forward settling MBS position of $2.1 billion as of 12/31/2013. Meanwhile, MTGE held a net long (short) TBA MBS and forward settling MBS position of ($0.8) billion as of 12/31/2013.

Other than the minor difference in each company's TBA MBS and forward settling MBS position, AGNC and MTGE had a fairly similar proportion of interest rate swaps, swaptions, and U.S. Treasury securities (also known as each company's hedging portfolio) as of 12/31/2013. These similarities were shown within Table 13 in PART 2 of this article. Each company's hedging portfolio only had a slightly different hedging coverage ratio while having a similar total weighted average term/maturity and weighted average duration (estimate of interest rate sensitivity in years). These subtle differences caused minor valuation differences between each company's derivative portfolio for the current quarter (proportionally speaking).

Side Note: Similar to AGNC, I have weekly and cumulative quarterly valuation gain (loss) tables for MTGE regarding the company's TBA MBS and forward settling MBS portfolio, interest rate swaps, interest rate swaptions, and U.S. Treasury securities. However, this article's main focus is on AGNC (not MTGE). From the sheer amount of data already provided in regards to AGNC above, I am excluding similar tables regarding MTGE's valuation analysis from this article.

With that being said, I am projecting MTGE's derivative portfolio to have the following net valuation gains (losses) through the week ending 2/14/2014:

a) TBA MBS and forward settling MBS net valuation gain (loss) of ($15) million;

b) Interest rate swaps net valuation gain (loss) of ($38) million;

c) Interest rate swaptions net valuation gain (loss) of ($27) million; and

d) U.S. Treasury securities net valuation gain (loss) of $15 million

Therefore, when combining these four main derivative sub-accounts together, I am projecting MTGE's derivative portfolio to have a total net valuation gain (loss) of ($65) million through the week ending 2/14/2014.

Conclusions Drawn (PART 3):

To sum up the analysis above, I am projecting AGNC's derivative portfolio to have the following net valuation gains (losses) through the week ending 2/14/2014:

a) TBA MBS and forward settling MBS net valuation gain (loss) of $55 million;

b) Interest rate swaps net valuation gain (loss) of ($435) million;

c) Interest rate swaptions net valuation gain (loss) of ($155) million; and

d) U.S. Treasury securities net valuation gain (loss) of ($15) million

When combining these four main derivative sub-accounts together, I am projecting AGNC's derivative portfolio to have a total net valuation gain (loss) of ($550) million through the week ending 2/14/2014. As concluded in PART 1 of this article, I have projected AGNC's MBS portfolio had a net valuation gain (loss) of $645 million through the week ending 2/14/2014.

As such, I am projecting the total net valuation gain on AGNC's MBS portfolio is heavily mitigated by the total net valuation loss on the company's derivative portfolio. However, when both portfolios are combined, I am still projecting a net positive valuation gain through the week ending 2/14/2014. As will be shown next, for readers who understand AGNC's business model, this bodes well for the company's BV per share.

BV Projection (As of 2/14/2014, 2/21/2014, 2/28/2014, and 3/7/2014):

Finally, we have arrived at a projected BV per share amount which is partially based on the valuation analysis of AGNC's MBS portfolio (performed in PART 1 of this article) and the valuation analysis of the company's derivative portfolio (performed in PART 3 of this article). It should be noted this BV per share projection includes all remaining quarterly activities/accounts not discussed within this three-part article.

The following are my projected AGNC BV per share amounts:

BV of $25.32 per share as of 2/14/2014 (Range $24.82 - $25.82 per share)

BV of $25.25 per share as of 2/21/2014 (Range $24.75 - $25.75 per share)

BV of $25.85 per share as of 2/28/2014 (Range $25.35 - $26.35 per share)

BV of $25.38 per share as of 3/7/2014 (Range $24.88 - $25.88 per share)

These BV per share projections EXCLUDE the soon to be declared dividend for the first quarter of 2014 because AGNC's stock price has yet to "reset" lower. This reset happens when the company's "ex dividend" date occurs.

AGNC's stock price recently closed at $22.00 per share as of 3/7/2014. This calculates to a projected premium (discount) to CURRENT BV of (13.57%). While this percentage is still a material discount to CURRENT BV, the amount of the company's discount has recently decreased. Only a few months ago, AGNC's premium (discount) to CURRENT BV was over (20%).

As such, I would personally recommend a HOLD position on AGNC. However, some attractive opportunities to purchase initial/additional shares should continue to occur as markets speculate future economic conditions/FED monetary policies. This especially holds true for readers who have a higher tolerance for risk.

Source: American Capital Agency's Mid-Q1 2014 Book Value Projection And Derivative Portfolio Valuation Analysis - Part 3