Company: NLY-PF
Filing Date: 2025-07-30
Form Type: 10-Q
Source: 0001628280-25-036724
Chunk: 3

Company: ANNALY CAPITAL MANAGEMENT INC
Filing Date: 2025-07-30
Form: 10-Q
Item: Part I, Item 2
Chunk 3
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 inflation decelerating and most other service categories also softening. Goods inflation, meanwhile, continued to moderately accelerate, though the data has yet to show broad-based passthrough from higher tariff rates. 

The improved market conditions facilitated a rebound in most asset classes to recover from their sharp underperformance in April, leading financial conditions – a gauge of money and credit flow in support of the economy – to reach some of the most accommodative levels seen since the onset of the Federal Reserve (“the Fed”) monetary policy tightening in 2022. Despite the improvement in market sentiment, some challenges persist. For example, long-term Treasury yields remain elevated, with the 30-year Treasury bond yielding 4.77% at the end of June 2025, compared to 4.57% at the end of March 2025. The higher long-term bond yields – which briefly exceeded the 5% yield level during the quarter – have been driven by increased term premia, the extra compensation investors demand to hold long-term bonds. Investor concerns over rising government budget deficits following the passage of the recent tax and spending bill and potential longer-term changes to global capital flows could lead to more supply and less broad-based demand for U.S. Treasury securities. The sharp tightening in swap spreads – the difference between interest rate swap yields and Treasury yields of similar maturities – are another indicator of the same dynamic.

Against this backdrop, Annaly generated earnings available for distribution of $0.73 and delivered an economic return of 0.7% for Q2 2025 and 3.7% for the first half of 2025. Incremental investment was allocated toward the Agency mortgage-backed securities (“Agency MBS”) business, with its capital allocation increasing slightly to 62%. This resulted in economic leverage rising from 5.7x in Q1 2025 to 5.8x at quarter end. While relative value led us to underweight our non-Agency strategies during the quarter, diversification continues to be a strategic priority, as we believe it enhances the stability of risk-adjusted returns for our shareholders. 

Market conditions for our Agency MBS business improved throughout the quarter as interest rates stabilized, the yield curve steepened, and implied volatility declined. Of note, comparable fixed income asset spreads – such as investment grade rated corporate credit securities – benefited from the same developments but ultimately saw additional tightening given the robust risk sentiment in markets. Agency MBS performance lagged behind these products, as demand from the overseas and bank communities has remained muted