Dynex Capital (NYSE:DX) reported what executives described as a strong second quarter of 2026, citing book value growth, accretive capital issuance and continued expansion of its Agency mortgage-backed securities portfolio.
On the company’s earnings call, Smriti Popenoe, co-chief executive officer and president, said Dynex generated a total economic return of 6.4% for the quarter while issuing nearly $400 million of capital. She said the company’s capital base increased to $3.1 billion in the first half of the year from $2.4 billion at year-end, while its Agency MBS portfolio grew by more than 40%.
Book Value Rises as Net Interest Income Improves
Michael Sartori, chief financial officer, said Dynex ended the quarter with book value per share of $12.90, up 2.4% from $12.60 at March 31. The increase was primarily driven by tighter spreads versus the prior quarter and accretive capital deployment, he said.
The company’s 6.4% total economic return included $0.51 per share in common dividends and $0.30 per share from an increase in portfolio value during the quarter. Net interest income rose to $0.42 per share from $0.40 in the prior quarter, which Sartori attributed mainly to lower funding costs, new capital deployment into investments with attractive yield profiles and earnings from the existing portfolio.
Adjusted leverage declined to 8.1 times total equity from 8.6 times at the end of the previous quarter. Sartori said the decrease was primarily due to portfolio appreciation and retention of capital for future investment opportunities.
Dynex raised $391 million of capital in the second quarter at levels Sartori said were accretive to book value. He said the proceeds were deployed into Agency MBS opportunities as spreads remained supportive of risk-adjusted returns. The company ended the quarter with $1.6 billion of cash and unencumbered securities, representing more than 51% of total equity.
Agency MBS Remains Core to Strategy
Popenoe said Dynex’s conviction in Agency MBS remains high, describing the asset class as liquid, flexible and “cycle-tested.” She said the company’s macro view over the past decade led it to prioritize liquidity and flexibility and to allocate most of its capital to the agency sector.
“In our view, Agency MBS remains the best risk-reward across our investment universe for this macro environment,” Popenoe said.
She also emphasized the company’s focus on scale, saying larger companies often receive better valuation metrics and can benefit from passive investment flows. Popenoe said Dynex aims to create a “virtuous flywheel” in which investment performance attracts investors, supports valuation, enables accretive capital raising and funds additional investment in high-quality assets.
She also pointed to geopolitical conflict and technological change as reasons for maintaining a strong risk management focus. The company is investing in people, technology and operating processes to improve resilience, she said.
Portfolio Positioned for Volatility and Cash Flow
T.J. Connelly, chief investment officer, said the company’s second-quarter results reflected a repeatable process built around liquidity, risk management and disciplined capital deployment. He said Dynex carried substantial liquidity, maintained a strong funding position and deployed new capital after mortgage spreads widened late in the first quarter and into the second quarter.
Connelly said the current environment is marked by “bouts of volatility followed by periods of calm.” He identified two broad trends shaping the company’s risk posture: the AI investment boom and the role of policy, including Federal Reserve, housing, fiscal and regulatory policy.
On AI, Connelly said Dynex views the current period as the capital-intensive phase of a transformative cycle that can be prone to over-financing and repricing. He said such periods can create opportunities for investors with liquidity and flexibility.
Connelly said the company is focused on high-quality positions that can be traded regularly, priced transparently, financed readily or converted to cash. That supports its focus on Agency MBS hedged with interest rate swaps and futures, he said.
Looking ahead, Connelly said Dynex’s outlook remains constructive. He said Agency MBS spreads to swaps remain attractive, mortgage rates have been stable, refinancing activity remains muted and assets are generating solid cash flow and income.
- Dynex lowered its 2026 net mortgage supply forecast to $165 billion from $200 billion.
- Connelly said fixed-income demand remains strong, including from bond funds and annuities.
- He said money managers continue to prefer Agency MBS over corporate credit.
- The company expects to deploy capital in Agency RMBS, specified pools and seasoned securities.
Executives Address Leverage, Spreads and AI Refinancing Risk
During the question-and-answer session, an analyst asked for an update on book value quarter to date. Connelly said that through Friday, July 17, spreads were about three basis points wider, and book value was approximately $12.67.
Asked about mortgage spreads over the next 12 months, Connelly said the government-sponsored enterprises’ activity has been important as a stabilizer. He said Dynex believes spreads could move to a range of 100 to 120 basis points when looking at current coupon versus seven-year spreads, which he described as a potential equilibrium over time.
In response to a question about leverage, Connelly said that in the current environment, he expects leverage to run between 7.5 times and 8.5 times. He said that range is comfortable given the technical backdrop for mortgages and the opportunity in spreads, though the company could potentially carry more leverage during bouts of liquidity.
Asked about AI-driven refinancing risk and negative convexity, Connelly said AI is likely to make it easier for originators to refinance borrowers quickly. He said security selection will become increasingly important, with loans that are easiest to refinance potentially paying down faster. Characteristics such as lower loan balances may become more valuable as protections against prepayments, he said.
On operating expenses, Sartori said Dynex continues to track its expense ratio at 2% of total equity for the year.
Management Says Tailwinds Remain Intact
Popenoe closed the call by saying long-term tailwinds for Dynex’s business model remain in place, citing demographic demand for income and housing. She said near-term conditions remain favorable for the company to grow, invest and build resilience.
She said Dynex is delivering a double-digit dividend yield, potential book value upside if MBS spreads tighten and the possibility of stronger valuation as markets price the company’s track record and scale.
About Dynex Capital (NYSE:DX)
Dynex Capital, Inc is a mortgage real estate investment trust (REIT) that specializes in acquiring and managing mortgage-related assets. The company’s primary business involves investing in residential mortgage-backed securities (RMBS), including agency-backed pools issued or guaranteed by government-sponsored entities such as Fannie Mae, Freddie Mac and Ginnie Mae, as well as selected non-agency RMBS. Dynex Capital seeks to generate net interest income by earning interest on its portfolio while employing leverage through secured repurchase agreements and other debt facilities.
In pursuing its investment objectives, Dynex Capital manages portfolio duration and interest rate exposures, with a focus on preserving capital and optimizing yield over the economic cycle.
