AGNC Investment (NASDAQ:AGNC) Q4 earnings are expected to fall from the previous quarter, but steadying mortgage rates by the end of the quarter may indicate the worst effects of elevated mortgage rates may be behind it.

The mortgage REIT is expected to report after the close on Monday Q4 net spread and dollar roll income of $0.65 per share in Q4, compared with $0.84 in Q3 2022. Last quarter, the company’s earnings and its net asset value per share were hurt by widening spreads between mortgage-backed securities and Treasurys.

BTIG analyst Eric Hagen notes that spreads have tended to widen when long-term benchmark interest rates are arising, and/or when the forward fed funds curve is steepening. In Q4 2022, the Federal Reserve raised its policy rate by 125 basis points.

And the Fed may have a couple more rate hikes left. The central bank is expected to increase the federal funds rate target range by 25 basis points next week to 4.50%-4.75%.

Even with the Fed hikes, though, mortgage rates depend more on investors’ appetite for mortgage-backed securities. The higher the demand for the securities, the lower the interest rates go. The average 30-year mortgage rate stood at 6.42% for the week ended Dec. 29, 2022 vs. 6.70% at Sept. 29, reaching a peak of 7.08% for the week ended Nov. 10, 2022.

One high-profile investor betting that spreads between 30-year mortgages and 10-year Treasurys will narrow is Bill Gross, who said in December he’s buying shares of AGNC (AGNC) and Annaly Capital Management (NLY).

Looking back at the past 12 quarters, AGNC’s (AGNC) earnings estimate has beat the Wall Street consensus each time. Revenue, though has only beat in three of the past 12 quarters.

In terms of earnings revisions, analysts are optimistic. The earnings consensus estimate has increased by 17% in the past three months and by 25% in the past six months.

SA contributor JR Research wrote that the worst is likely over for AGNC (AGNC) in the near term as the Fed could be near its peak rate.