ANNALY CAPITAL MANAGEMENT INC
For the period ended Mar 31, 2026. Filed Apr 29, 2026.
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Mar 31, 2026 · Filed Apr 29, 2026
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Investment/Market Risk Management
One of the primary risks we are subject to is investment/market risk. Changes in the level of interest rates can affect our net interest income, which is the difference between the income we earn on our interest earning assets and the interest expense incurred from interest bearing liabilities and derivatives. Changes in the level of interest rates and spreads can also affect the value of our assets and potential realization of gains or losses from the sale of these assets. We may utilize a variety of financial instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the adverse effects of interest rates on our results. In the case of interest rate swaps, we utilize contracts linked to SOFR but may also enter into interest rate swaps where the floating leg is linked to the overnight index swap rate or another index. In addition, we may use MAC interest rate swaps which offer price transparency, flexibility and more efficient portfolio administration through compression which is the process of reducing the number of unique interest rate swap contracts and replacing them with fewer contracts containing market defined terms. Our portfolio and the value of our portfolio, including derivatives, may be adversely affected as a result of changing interest rates and spreads.
We simulate a wide variety of interest rate scenarios in evaluating our risk. Scenarios are run to capture our sensitivity to changes in interest rates, spreads and the shape of the yield curve. We also consider the assumptions affecting our analysis such as those related to prepayments. In addition to predefined interest rate scenarios, we utilize Value-at-Risk measures to estimate potential losses in the portfolio over various time horizons utilizing various confidence levels. The following tables estimate the potential changes in economic net interest income over a twelve month period and the immediate effect on our portfolio market value (inclusive of derivative instruments), should interest rates instantaneously increase or decrease by 25, 50 or 75 basis points, and the effect of portfolio market value if mortgage option-adjusted spreads instantaneously increase or decrease by 5, 15 or 25 basis points (assuming shocks are parallel and instantaneous). All changes to income and portfolio market value are measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario. The net interest income simulations incorporate the interest expense effect of rate resets on liabilities and derivatives as well as the amortization expense and reinvestment of principal based on the prepayments on our securities, which varies based on the level of rates. The results assume no management actions in response to the rate or spread changes. The following table presents estimates at March 31, 2026. Actual results could differ materially from these estimates.
| Change in Interest Rate (1) | Estimated Percentage Change in Portfolio Value (2) | Estimated Change as a% on NAV (2)(3) | Projected Percentage Change in Economic Net Interest Income (4) |
|---|---|---|---|
| -75 Basis points | —% | 0.2% | 2.6% |
| -50 Basis points | 0.1% | 0.9% | 2.0% |
| -25 Basis points | 0.1% | 0.8% | 1.3% |
| +25 Basis points | (0.2%) | (1.5%) | (1.9%) |
| +50 Basis points | (0.5%) | (3.5%) | (4.6%) |
| +75 Basis points | (0.8%) | (5.9%) | (7.5%) |
| MBS Spread Shock (1) | Estimated Change inPortfolio Market Value (2) | Estimated Change as a % on NAV (2)(3) | |
| -25 Basis points | 1.3% | 9.3% | |
| -15 Basis points | 0.8% | 5.5% | |
| -5 Basis points | 0.3% | 1.8% | |
| +5 Basis points | (0.3%) | (1.8%) | |
| +15 Basis points | (0.8%) | (5.5%) | |
| +25 Basis points | (1.3%) | (9.1%) | |
| (1) Interest rate and MBS spread sensitivity are based on results from third party models, which may be tuned by our internal investment professionals. Models are periodically updated for items including but not limited to refinement of assumptions or calibrating parameters. Such updates are completed by third parties and are also part of the Company’s tuning of external models. Updates are reflected in the period in which they occur and may impact the results of the rate and spread sensitivities shown. Actual results could differ materially from these estimates.(2) Scenarios include securities, residential mortgage loans, MSR and derivative instruments.(3) NAV represents book value of equity.(4) Scenarios include securities, residential mortgage loans, repurchase agreements, other secured financing and interest rate swaps. Economic net interest income includes the net interest component of interest rate swaps and net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss). | |||
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