It’s not hard to understand how a buy back affects book value (BV) if you think about the extreme cases.
1) They liquidate everything and buy back the shares at a price that is higher than the BV per share. In this scenario they run out of money before they can buy all the shares so obviously the BV per share goes to zero for the remaining shares and thus BV per share goes down when buying back shares at a price higher than BV per share.
2) They liquidate everything and buy back the shares at a price that is less than the BV per share. In this scenario they end up with a mountain of money before all the shares are bought back so those remaining shares have a very high BV per share and thus BV per share goes up when buying back shares at a price lower than BV per share.
3) They liquidate everything and buy back the shares at a price that is equal to the BV per share. In this scenario they end up with exactly nothing when all the shares are bought back or when they buy the last share they do it with their last dollars which is equal to the amount of that last share and thus BV per share remains unchanged when buying back shares at a price equal to the BV per share.
However, scenarios 1 and 2 are fictional because as the BV per share started to rise or fall so would the share price to match it as sellers saw that their shares were becoming worth less or more and thus they would adjust the price accordingly. But it is easier to understand the concept in these simpler terms so I stated it as such.
Currently the book value per share is higher than the share price so if they were to start buying back shares today the BV per share would go up. However, realizing this, investors will drive the price up and thus the share price should converge on BV per share or over shoot it as investors often cause to happen as they over react.
500 Million is only about 5% of the total book value so I would not expect anything out of the ordinary to happen. My guess is the stock price will increase to book value at least and maybe even more but it won't skyrocket.
What are the implications of the buy back in my opinion? It says to me that AGNC would rather stop buying lower interest rate loans so that their spread does not decrease any further. Nothing more. And as long as they are not paying more than BV per share I would suspect that there is nothing to be concerned about as an investor. Who cares if the amount they have invested in mortgages goes down as long as there are fewer shares to reflect that smaller amount of investment and this BV per share is not impacted. All it means is that there won’t be as many shares for people to own. It also means that AGNC is not buying these cheap loans which will not be worth as much when interest rates start to rise again. In my opinion it is a good thing. They are doing exactly what they should be doing. If the fed keeps this up then I suspect that AGNC will continue to buy back shares as home owners refinance. So what, as long as BV per share remains unchanged.
In this current scenario I would rate AGNC a buy. But that is my personal opinion. Make your own decision. I’m buying more.