Residential mREITs

Research evidence excerpt

Residential mREITs

July 1, 2026 Residential mREITs

Book Value Update: Tighter Spreads Drives 2Q Book Value Recovery

Douglas Harter

WHAT YOU SHOULD KNOW: We estimate that the mREITs generated a 5.0% economic (332) 400-5093 dharter@btig.comFINANCIALS return in 2Q26 given the positive benefit of tighter MBS spreads, both Agency and non- Will Nasta Agency. In the quarter we see Agency-focused mREITs outperforming the residential (212) 738-6157 wnasta@btig.com

credit names from an economic return perspective.

■ Agency: We estimate that the Agency-focused mREITs generated a 7.0% economic

return in 2Q26 comprised of 3.0% book value gains plus the dividend. The key

differentiating factors in the quarter were coupon selection, hedge composition,INDUSTRY

and interest rate risk management.

■ Coupon selection: Higher coupon (4.5% and above) have outperformed

(as measured by Bloomberg excess return) lower coupons; most of this

outperformance occurred in April as 1Q underperformance was reversed.REPORT This outperformance will benefit the mREITs (AGNC [AGNC, Neutral],

Invesco [IVR, Neutral]) with higher average coupon portfolios.

■ Interest rate risk management: MBS spread volatility was more subdued in

2Q26 (20 bp range in spreads vs. 46 bps in 1Q26), but rates still traded in a

wide range (42 bp range on 10-year Treasury). This range introduces risk of

higher convexity hedging costs incurred during the quarter.

■ Hedge composition: The yield curve (2/10s) has flattened by 23 bps in the

quarter as the front end of the curve has repriced higher given the change in

Fed expectations. Many of the Agency-focused mREITs have positioned their

portfolios to benefit from further curve steepening by maintaining a longer

duration on hedges. DX has the highest percentage of long-dated hedges