ybf - in the recent Citi Financial Services Conference - GK identified 3 possible/probable scenarios going forward: 1 - Economic activity picks up modestly with a commensurate rise in the 10 yr rate, the yield curve and mtg rates; 2- economy weakens, rates compress (short rate is already at zero), mtg rates continue to drop, prepayments increase, less NIM on new purchases (basically the scenario for the last couple of yrs - but with less portfolio NIM overall); and 3 - economy and/or inflation pick up markedly, as do rates etc.
GK identified scenarios 1 and 2 as the most likely and the ones that AGNC is most prepared for with its current portfolio and hedging strategies. GK identified the 3rd scenario as the least likely and the the scenario presenting the most risk to AGNC.
Of course - the Citi presentation was just prior to the most recent SPO. In short with the SPO AGNC increased the risk associated with scenario 2 (can't cheaply buy HARP loans now) and scenario 3 (rapid rate rise environment) and didn't get to take advantage of 'slightly better' NIMS available to the recent modest increase in mtg rates (scenario 1).
Basically the SPO allowed for a one-time increase in BV - but increased the risk of the now very large portfolio that can't be easily 'repositioned'. Best hope for existing shareholders is that short and long term rates just 'stay where they are' for the forseeable future.