Q2 2026 Invesco Mortgage Capital Inc Earnings Call
Speaker #1: As a reminder, this call is being recorded. I would now like to turn the call over to Greg Seals from Investor Relations. Mr. Seals, you may begin the call.
Speaker #2: Thanks, operator. And to all of you joining us on Invesco Mortgage Capital's second quarter 2026 earnings call, in addition to today's press release, we have provided a presentation that covers the topics we plan to address today.
Speaker #2: The press release and presentation are available on our website invescomortgagecapital.com. This information can be found by going to the investor relations section of the website.
Speaker #2: Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide 2 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP.
Speaker #2: Finally, Invesco Mortgage Capital is not responsible for and does not edit, nor guarantee, the accuracy of our earnings. Teleconference transcripts provided by third parties.
Speaker #2: The only authorized webcasts are located on our website. Again, welcome, and thank you for joining us today. I'll now turn the call over to IVR CEO, Kevin Collins, for his comments.
Speaker #3: Good morning, and welcome to Invesco Mortgage Capital's second quarter earnings call. I'll provide a few comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail.
Speaker #3: Also joining us on the call this morning for Q&A is our president, David Lyle, and our CFO, Mark Gregson. Before I speak to market developments and our performance for the quarter, I would like to emphasize that our management team remains focused on disciplined investment management, prudent risk-taking, and delivering attractive, risk-adjusted returns for our shareholders.
Speaker #3: We believe our platform's differentiated by deep expertise in agency mortgage markets, strong risk management, and access to extensive resources, market insights, and the global perspectives of Invesco.
Speaker #3: These advantages combined with the longstanding counterparty relationships and enhance our ability to source to finance and to hedge investments, position us well to navigate challenging market environments, and capitalize on attractive opportunities.
Speaker #3: Importantly, our portfolio remains concentrated in agency RMBS. Along with the meaningful allocation to agency CMBS, these sectors continue to offer compelling risk-adjusted value, supported by attractive carry, strong liquidity, and the credit protection provided by agency guarantees.
Speaker #3: Now, turning to market developments, the second quarter was characterized by improving financial conditions despite some periodic bouts of volatility driven by geopolitical developments in the Middle East and by shifting expectations for monetary policy.
Speaker #3: Resilient economic growth, strong labor markets, and an elevated inflation contributed to a very flattening of the U.S. Treasury yield curve, a short-term interest rates rose more than longer-dated yields, amid growing expectations that the FOMC's next policy move would be a hike rather than a cut.
Speaker #3: Although the second quarter was characterized by higher interest rates and more restrictive monetary policy expectations, it's important to note that interest rate volatility declined notably from March levels, while inflation expectations moderated despite ongoing uncertainty surrounding energy prices.
Speaker #3: The two-year break-evens fell sharply to 2% at quarter-end, from 3.25% at the end of the first quarter, and these developments supported risk assets broadly, and they contributed to higher coupon agency RMBS outperformance relative to U.S.
Speaker #3: Treasuries. Our agency RMBS and TBA investments performed well, driven by attractive carry and contracting risk premiums, and our agency CMBS contributed—excuse me—and our agency CMBS continued to provide notable stability supported by attractive relative valuations and predictable cash flows.
Speaker #3: Against this backdrop, we generated an economic return of 3.8% consisting of monthly dividends of 12 cents per share and a modest decline in book value per share of 0.6%.
Speaker #3: Our estimated book value quarter-to-date is down roughly 2.5%, which backs out our accrued dividend, given recent mortgage underperformance. So, at quarter-end, our economic debt-to-equity ratio remained unchanged, and our $8.2 billion investment portfolio consisted of $6 billion of agency RMBS, $1.2 billion of agency TBA, and $0.9 billion of agency CMBS.
Speaker #3: We also maintained a sizable balance of unrestricted cash and unencumbered investments totaling $548.3 million. Our earnings available for distribution declined from $0.55 in the first quarter to $0.50 in the second quarter. As of quarter-end, we hedged 97% of our borrowing costs with interest rate swaps and U.S.
Speaker #3: Regarding capital activities, we raised approximately $118 million during the quarter and more than $250 million year-to-date, enabling us to meaningfully expand our investment portfolio and capitalize on attractive opportunities across the agency mortgage market.
Speaker #3: We're encouraged by the growth of the company, which has enhanced our scale, its improved operating efficiency, and its reduced expenses on a per-share basis.
Speaker #3: In addition, we believe our larger equity base and increased market capitalization will improve the liquidity profile of our common stock, which should ultimately broaden our appeal to investors and support long-term shareholder value.
Speaker #3: As we continue to grow, we believe these benefits, combined with our disciplined investment approach, position us to generate attractive returns and create value for shareholders over time.
Speaker #3: So, entering the third quarter, we remain constructive, yet measured in our outlook for agency RMBS and agency CMBS as attractive valuations and supportive market fundamentals are balanced against ongoing uncertainty, surrounding monetary policy, as well as inflation, and geopolitical developments.
Speaker #3: Despite these uncertainties, we believe valuations for our target assets remain compelling, as interest rate volatility and inflation expectations have moderated from their first quarter peaks.
Speaker #3: Supply and demand dynamics remain favorable, as constrained net supply continues to be absorbed by broad-based investor demand. Additionally, we believe a sustained de-escalation of geopolitical tensions in the Middle East would likely benefit our target assets, through reduced volatility, but also through an improved risk sentiment.
Speaker #3: Agency CMBS is also well-positioned, supported by its attractive risk-adjusted yields, its relatively low sensitivity to interest rate fluctuations, and its diversification benefits. Taken together, these macroeconomic and market technical factors create a supportive backdrop for our investment strategy as we enter the second half of 2026.
Speaker #3: Further, we believe our capital structure and our financing profile provide us with flexibility needed to pursue opportunities while navigating continued uncertainty surrounding monetary policy, economic growth, and geopolitical developments.
Speaker #3: Away from market developments and our outlook, we remain committed to providing our investors with monthly financial summaries and paying monthly dividends to enhance transparency, deliver more consistent cash flows to income-oriented investors, and strengthen investor engagement.
Speaker #3: So, to summarize, we believe our team, our capital structure, and our investment portfolio are all well-positioned for the future. Looking ahead, we're excited to leverage our core competencies in agency MBS and to continue delivering attractive outcomes for our investors.
Speaker #3: So, now I'll turn the call over to Brian to go through our portfolio and our performance for the quarter in greater detail.
Speaker #1: Thanks, Kevin, and good morning to everyone listening to the call. I'll begin on slide 5, which provides detail on interest rates over the past year.
Speaker #1: As Kevin noted in his opening remarks, the Treasury yield curve very flattened in the second quarter, as expectations for near-term monetary policy shifted from easing to tightening.
Speaker #1: Approximately one-third of the flattening occurred in the last two weeks of the quarter, in response to new federal reserve chairman Kevin Warsh's first FOMC meeting.
Speaker #1: As the ensuing statement and press conference were more hawkish than initially anticipated. The chairman sought to cement a tough stance on inflation, emphasizing the price stability portion of the Fed's mandate over that of employment.
Speaker #1: Financial markets responded accordingly. Pricing in tighter near-term monetary policy and lower future inflation expectations. As inflation break-evens declined quarter over quarter. Conversely, Treasury yields ended the quarter near their highest levels since early 2025, resulting in 30-year mortgage rates near 6.5% at quarter-end and further limiting housing activity as affordability remains challenged.
Speaker #1: Positively, interest rate volatility recovered from the sharp Iran conflict-driven increase in March, supporting agency mortgage valuations. Lastly, funding markets remained stable throughout the quarter, as lending capacity for our target assets remains ample and financing spreads over so far largely unchanged in the low teens.
Speaker #1: Slide 6 provides more detail on the agency MBS markets over the past year, with the second quarter highlighted in gray. Despite the bare flattening move in Treasury yields, both agency RMBS and CMBS spreads tightened over the quarter, consistent with the improved tone in financial conditions and risk sentiment.
Speaker #1: Although the entire 30-year coupon stack outperformed Treasury hedges during the quarter, they outperformance was more pronounced in higher coupons, which were primarily supported by the decline in volatility and constructive supply and demand dynamics.
Speaker #1: Net supply in agency RMBS remained muted, with year-to-date issuance of just $81 billion through June. On the demand front, investor interest remained broad-based, with overseas investors—banks, money managers, and mortgage REITs—all increasing their allocations during the quarter.
Speaker #1: Demand from Fannie Mae and Freddie Mac continued to underwhelm initial expectations; however, as their combined retained portfolios were little changed during the second quarter.
Speaker #1: The two entities still have over $100 billion of additional capacity under their portfolio caps, providing some comfort for investors with the expectation that the GSEs could provide support if valuations were to soften materially.
Speaker #1: The dollar roll market for higher coupon agency TBAs benefited from favorable technical conditions, with implied financing rates for production coupons remaining below one month SOFR for much of the quarter, enhancing levered return potential.
Speaker #1: These constructive supply and demand dynamics also supported the agency CMBS sector, where issuance volumes moderated during the second quarter, while robust demand from banks, money managers, and mortgage REITs contributed to modestly tighter spreads.
Speaker #1: Higher mortgage rates, however, weighed on specified pool payoffs in higher coupons, as refinancing activity remained subdued and demand for prepayment protections softened accordingly. Despite this near-term pressure, we continue to view prepayment protection obtained through carefully selected specified pools particularly in premium-priced holdings, as an attractive investment for mortgage investors and an effective tool for mitigating the convexity risk inherent in agency mortgage portfolios.
Speaker #1: Slide 7 summarizes the changes in our portfolio over the course of the second quarter. Our portfolio increased 12.4% quarter-over-quarter, as we invested proceeds from ACM issuance.
Speaker #1: Most of our netted purchases occurred in specified pools, focused across collateral stories in 30-year 4.5 through 6% coupons. In our view, the decline in specified pool payoffs during the second quarter created a compelling opportunity to add exposure at more attractive valuations, as we continue to prioritize income protection in the portfolio.
Speaker #1: With nearly 85% of the portfolio allocated to securities with some form of prepayment protection, via specified pools, and agency CMBS. Levered gross returns on higher coupons specified pools hedged with swaps were in the mid to high teens, with the current coupon spread to the 5 and 10-year so far blend ending the quarter at 143 basis points.
Speaker #1: Modest widening in July has improved those returns into the high teens as of today. Given the growth in specified pools within the portfolio, our allocation to agency TBA and agency CMBS declined modestly.
Speaker #1: From 16.9% to 14.7% in agency TBA, and 11.9% to 11.1% in agency CMBS. Both remained core holdings in our portfolio despite the decline in allocations, with agency TBA continuing to provide attractive levered gross returns in the high teens, as implied financing rates persist near or below one month repo rates in production coupons.
Speaker #1: Agency CMBS spreads tightened modestly during the quarter, largely performing in line with lower coupon agency RMBS and continued to provide notable stability to the portfolio.
Speaker #1: Despite limited new purchases, we continue to believe agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities. Which reduced our sensitivity to interest rate volatility.
Speaker #1: Levered gross returns are in the low double digits and remain consistent with lower coupon agency RMBS, while financing capacity has been robust, as we continue to fund our positions with multiple counterparties at attractive levels.
Speaker #1: We will continue to monitor the sector for opportunities to increase our allocation to the extent the relative value between agency CMBS and lower-coupon agency RMBS is attractive.
Speaker #1: Recognizing the overall benefits as the sector diversifies risks associated with agency RMBS. Slide 8 details our funding book at quarter-end. Repurchase agreements collateralized by our agency RMBS and agency CMBS investments increased from $5.3 billion to $6.2 billion, as we funded most of our net purchases via repo.
Speaker #1: While the total notional of our hedges increased from 4.9 billion to 6 billion. Excluding the implied funding via our agency TBA allocation, we kept our hedge ratio elevated at 97%, given the increased uncertainty regarding the path of monetary policy.
Speaker #1: In addition, we continue to maintain significant liquidity, with approximately 550 million of cash and unencumbered investments at quarter end, equating to 55% of our total equity.
Speaker #1: Slide 9 provides a detail on our hedge book at quarter end. The composition of our hedges remained weighted towards interest rate swaps, with 79% of our hedges consisting of interest rate swaps on a notional basis, and 65% on a dollar duration basis.
Speaker #1: Swap spreads widened 2 to 4 basis points during the quarter, serving as a modest tailwind for our performance. We remained comfortable focusing the majority of our hedges in interest rate swaps, as we believe swap spreads are historically tight and offer an attractive hedge profile relative to Treasury futures.
Speaker #1: Slide 10 is a new addition to the presentation and provides our model-based estimates of book value sensitivity to instantaneous shocks and interest rates and mortgage spreads.
Speaker #1: Looking first at the table at the top of the slide, we reduced our duration gap from approximately one half-year to one quarter-year, reflecting a more cautious stance on the direction of interest rates.
Speaker #1: While this chart assumes a parallel shift in the yield curve, the more significant market development during the second quarter was a pronounced flattening of the yield curve, with 2-year Treasury rates rising nearly 40 basis points, while the 10-year rose 15 basis points.
Speaker #1: Which was a headwind for our performance. On the bottom table, the impact of changes in mortgage OAS is largely unchanged quarter-over-quarter, as our portfolio leverage remained consistent.
Speaker #1: We continue to view current leverage levels of 9 times debt-to-common equity as appropriate in this environment of elevated uncertainty. The conclude our prepared remarks.
Speaker #1: The management team remains committed to delivering exceptional investment performance for our shareholders. We are pleased with the performance of our agency MBS portfolio through a challenging backdrop, as the combination of higher coupon agency RMBS and our agency CMBS position has performed well.
Speaker #1: We are also excited about the recent growth of the company, recognizing the significant benefits this growth has for our shareholders, through the efficient deployment of proceeds into attractive investments, lower expenses per share, and better liquidity for our stock.
Speaker #1: Although elevated risks in the Middle East and the path of monetary policy may create near-term volatility in mortgage valuations, we continue to believe the medium- to long-term outlook for our target assets remains constructive, supported by favorable supply and demand dynamics.
Speaker #1: Additionally, our liquidity position remains ample. Providing substantial cushion to withstand additional market stress while maintaining the flexibility to capitalize on opportunities in our target assets, as the investment environment improves.
Speaker #1: Thank you for your continued support of Invesco Mortgage Capital. We will now open the line for Q&A.
Speaker #2: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1. You will be prompted to record your name.
Speaker #2: To withdraw your question, you may press star 2. Again, just press star 1 to ask a question, and one moment, please, for our first question.
Speaker #2: It sounds like our first question comes from Marissa Lobo with UBS. You may ask your question.
Speaker #3: Good morning. Thanks for taking my question. On the book value move in the second quarter, could you talk to us about the attribution of that decline and how much was spread moves on lower coupons versus hedge performance versus the ATM issuance?
Speaker #1: Sure, Marissa. Hey, it's Brian. Good morning. Yeah, thanks for the question. As we mentioned, our higher coupon agency mortgages performed pretty well. Agency CMBS also modestly tightened on the quarter.
Speaker #1: I think our slight book value decline can be attributed to a couple of different factors. We have a modestly positive duration gap, which, as interest rates rose during the quarter, was a slight detractor.
Speaker #1: And then also, maybe a modest the modest flattening of the yield curve also had a minor impact on portfolio. And as. As far as.
Speaker #1: Yeah, as far as ATM issuance. Yeah. I mean, we are issuing relatively close to par. So as a modest impact to book value as well.
Speaker #3: Got it. And just thinking about the pace of ATM issuance, what is the remaining capacity and what should we look for in Q3, given your current portfolio growth targets and the spread environment?
Speaker #1: Sure. Yeah, thanks for your question, Marissa. So yeah, as you know, we raised roughly $118 million in Q2, all via our ATM, at levels close to book value, and at a pretty steady run rate.
Speaker #1: 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 to continue to focus on reducing our fixed cost per share and improving liquidity in our stock to the extent that we can.
Speaker #1: So our plan is to look for windows of opportunity to do that in the weeks ahead. Quarters ahead.
Speaker #3: Okay, great. Thank you.
Speaker #2: Thank you. Our next question comes from Trevor Cranston with Citizens JMP. Your line is open. You may ask your question.
Speaker #4: All right. Thanks. Follow-up question on the ATM. Can you give any update on capital that may have been raised in July so far and if so, where you guys have been deploying that within the coupon stack?
Speaker #4: Thanks.
Speaker #1: Yeah, we've continued to look for opportunities to do that. And deployed capital has been at, or just near, levels close to book value where we've been able to do that.
Speaker #1: And kind of held our portfolio composition steady to what we were doing in Q2.
Speaker #4: Yeah, Trevor, hey, it's Brian. I would also just add, I mean, we do include share count in our monthly updates. That will be forthcoming as well.
Speaker #4: And then also, as far as deployment of proceeds, it's still been kind of in that higher coupon range—30-year 5s through 6s primarily. And again, as I mentioned in my opening remarks, I think specified pool valuations have become more attractive relative to TBA, just given the softness and pay-ups that we've seen.
Speaker #4: Into higher rates. And so I think moving forward, if this environment were to persist, then that would be where we would deploy most assets.
Speaker #4: Got it. Okay, that's helpful. And then, one question looking at slide 6 on dollar roll financing. There's been quite an improvement in the financing on 6s, in particular.
Speaker #4: Can you guys just talk about what you think has been driving that improvement, particularly on the 6% coupon dollar roll financing? Thanks.
Speaker #1: Yeah, Trevor, that was as you can see, that was a pretty significant squeeze on the coupon there at the end of the quarter. That did if we were to extend that chart another week or so, it kind of bounced back into a more reasonable range.
Speaker #1: But there is, like I said, there's pretty strong supply and demand technicals going on in that coupon. That coupon tends to be one that CMO desks participate in the most to create floaters and versatile and those kind of things.
Speaker #1: 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.
Speaker #1: But it has bounced back to a more reasonable level. We still think it's like we said, dollar rule financing is still fairly attractive in those higher coupons.
Speaker #1: So we like the allocation that we have there. But yeah, that's a bit of an unusual kind of thing that happened at the end of the quarter.
Speaker #4: Okay, got it. Appreciate the comments. Thank you.
Speaker #2: Thank you. Our next question comes from Doug Carter with BTIG. You may ask your question.
Speaker #5: Thanks, and good morning. Hoping you could talk a little bit about your expectations for the shape of the yield curve, direction of rates under Chair Warsh, and kind of how you think about your position and what you’re watching for in case you might need to change any of that hedging strategy.
Speaker #1: Yeah, hey Doug. Good morning, it's Brian. Yeah, certainly, we've had two very different responses, or reactions, to the two Fed meetings under Chair Warsh.
Speaker #1: I mentioned what happened in June. But just a couple of days ago, we've had a pretty significant steepening move as the, I guess, the press conference was certainly more dovish than expectations.
Speaker #1: So I think for the most part, our house view is that the Fed will be on hold in monetary policy for the foreseeable future.
Speaker #1: But I think also that the kind of 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.
Speaker #1: So there's certainly a chance that there could be a hike in the latter half of 2026. But again, our house view is that they'll be keeping monetary policy on hold for the foreseeable future.
Speaker #5: Great. And with less forward guidance from Warsh, kind of how does that impact kind of how you think about volatility, how you think about risk positioning?
Speaker #5: Is there anything that changes?
Speaker #1: Sure. It does, yes. Our expectations are that volatility particularly in the front end will increase or it has increased. And that tends to be a bit of a headwind for AGC mortgages.
Speaker #1: And I really think that's why you've seen some modest widening over the last month or month and a half in mortgages. And so I think current coupon spread to the 5- and 10-year, so for blend, was 143 at quarter end.
Speaker #1: And it's more like 150 now. So we've seen call it 7 basis points of widening since quarter end. And I think that's largely a reflection of the potential increased volatility both due to reduced forward guidance or the elimination of forward guidance and also the renewed kind of Middle East risks that we've seen.
Speaker #1: So, as far as putting a spread range on that, I think we're towards the wider end. In March of this year, we kind of hit the 160s area.
Speaker #1: As the Middle East conflict really started to escalate, and so I think that's probably a pretty good estimate of where we could get at the widest moments here if we were to kind of continue to see those risks escalate.
Speaker #1: But right now, we're at, call it, 150. And I think, again, there's more room for tightening, just based on how supportive the supply and demand technicals are.
Speaker #5: Great. Appreciate those answers. Thank you.
Speaker #3: We're noting as well, Doug, that given a more uncertain path of monetary policy, we have kept our hedge ratio at the high level of 97% at quarter end.
Speaker #5: That makes sense. Thank you.
Speaker #2: Thank you. Our next question comes from Jason Weaver with Jones Trading. You may ask your question.
Speaker #6: Hey, guys. Good morning. And thanks for the question. Just one for me. It looks like net economic investment spread is vulnerable to additional swap rolloff ahead over the next several quarters.
Speaker #6: How do you see the EAD run rate evolving from there just from that factor and also when the board sets dividend policy approximately how far out are they looking?
Speaker #1: Yeah, so thanks for your question. That's certainly something we're mindful of as we think about our hedge portfolio. I think the important point here is to really note that we're evaluating the dividend each quarter.
Speaker #1: In context to the EAD, because I assume that's where a lot of people's thinking goes and we're evaluating that each quarter based on current earnings as well as expected earnings, our portfolio composition and market opportunities.
Speaker #1: 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 leverage agency and BS returns, which we've talked about being important for us.
Speaker #1: It's also well covered at this point by the EAD. But I think as was noted as our hedge portfolio changes, that will be impacted.
Speaker #1: But I think the way we think about it overall to summarize is that we believe that we have a dividend that's supported by the long-term earnings power of our portfolio.
Speaker #1: And that's how we think about it contextually.
Speaker #6: All right. Thank you for that.
Speaker #2: Thank you. Our next question comes from Jason Stewart with Compass Point. Your line is open. You may ask your question.
Speaker #4: Hey, good morning. Thank you. Following up on Doug's question about curve shape. And I guess if you're in the camp where the Fed's on hold, you can make the argument that you'll see a steeper curve and more upside potential in 10s and mortgage rates if we follow that logic, one disagree if you do.
Speaker #4: And two, how do you think about premium at risk or spec pools in that environment? Do they still offer compelling value? And I think you touched a little bit on convexity profiles, but maybe dig a little bit more into which subsectors are a focal point, which ones you're avoiding, and how you're thinking about overall premium at risk.
Speaker #1: Yeah. Hey, Jason. Good morning. The first answer is yes, we would agree that if the Fed is on hold, we would expect to see some steepening in the yield curve.
Speaker #1: So that's the first part. And I guess the second part is more about specified pools. Our weighted average pay-up at quarter end was about 28 ticks.
Speaker #1: So that equates to about 50 million of market value. So that if they all went to zero, 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.
Speaker #1: And the value of specified pools in the current environment, we would agree that specified pool payups could soften but as we mentioned, we think that's a pretty compelling opportunity to add.
Speaker #1: Because we do think that going forward, the valuations of generic collateral will continue to deteriorate. And for a number of reasons—I think, obviously, loan balances have continued to increase, which makes them more susceptible to refinance activity.
Speaker #1: And then, also, with the proliferation of more technology and the refinancing process, we think that makes specified pool selection significantly more important. And that's kind of what our bread and butter is.
Speaker #1: And so that's what we're going to stick to, particularly, as we said, as those pay-ups kind of soften and provide attractive opportunities to add in the current environment. I think that will serve us well as we move forward.
Speaker #1: I think we've seen it even over the last couple of years just how much technology has improved the refinancing process and how much quicker the impact is felt.
Speaker #1: We saw it last fall and again in February of this year. And so I think to a certain extent, loan balance continues to be a significantly important aspect so choosing lower loan balances that are less impacted.
Speaker #1: We like the first-time homebuyer story as well, but I think, away from loan balance, we like being relatively well diversified across the collateral stories.
Speaker #1: So whether that be geography or high LTV or low FICO, and first-time homebuyer, those are all things that we're kind of looking at on a relative value basis.
Speaker #5: Okay. I guess first-time homebuyer would be in this bucket. But are there any new without giving away sort of I guess your secret sauce on where you're focused on deploying capital.
Speaker #5: Are there any new spec pool stories that are being developed that are interesting?
Speaker #1: Yeah. I wouldn't as far as being added to the portfolio yet, no. But we're obviously certainly continuing to kind of look at things. So there's nothing that I would point to right off the bat, no, other than I mean, first-time homebuyer can be included in all of those buckets.
Speaker #1: It's typically in kind of a high LTV bucket, so that's something that we've been finding quite attractive here lately.
Speaker #5: Okay. That's all from me. Thank you.
Speaker #2: Thank you. Our last question comes from Marissa Lobo with UBS. You may ask your question.
Speaker #3: Thanks. I just had a quick follow-up on how you're thinking about using swaps versus Treasuries for hedging in this rate environment.
Speaker #1: Hey, Marissa. Yeah, so we're still very comfortable with most of our hedge book being in interest rate swaps. Again, that's kind of been in the 75% to 80% range on a notional basis.
Speaker #1: And so yeah, I think going forward, we saw a modest improvement in swap spreads during the second quarter, but year to date, they're still a little bit tighter.
Speaker #1: So we still feel like that's a pretty attractive entry point to use for our hedge book.
Speaker #3: Okay. Great. Thank you.
Speaker #2: Thank you. And this time I'll turn the call back over to the speakers.
Speaker #7: Thanks to everyone that joined our call this morning. We appreciate your interest in Invesco Mortgage Capital and look forward to connecting the quarters to add.
