ARMOUR Residential REIT (ARR) Q3 2026 Earnings Call: Buchwert fällt um 17 %

Wichtigste Erkenntnisse

• ARMOUR Residential REIT (NYSE: ARR) meldete für das dritte Quartal 2026 einen GAAP-Nettoverlust für Stammaktionäre von 327 Millionen US-Dollar bzw. 2,26 US-Dollar je Stammaktie.
• Der für Stammaktionäre verfügbare ausschüttungsfähige Gewinn belief sich auf 102,3 Millionen US-Dollar bzw. 0,71 US-Dollar je Aktie, während sich die Dividenden auf Stammaktien im dritten Quartal auf insgesamt 0,72 US-Dollar je Aktie beliefen.
• Der Buchwert sank gegenüber dem 30. Juni um 17 % auf 14,55 US-Dollar je Stammaktie zum Quartalsende. Zum 19. Oktober schätzte das Unternehmen den Buchwert inklusive der aufgelaufenen Oktober-Dividende auf 14,65 US-Dollar je Aktie.
• Die wirtschaftliche Gesamtrendite war mit minus 12,9 % negativ. Dies spiegelte deutlich gestiegene Renditen von US-Staatsanleihen und eine Ausweitung des optionsbereinigten Spreads des Portfolios um 20 Basispunkte wider, wobei rund 80 % dieser Ausweitung im September stattfanden.
• Die verfügbare Liquidität lag zum Quartalsende bei 1,02 Milliarden US-Dollar. Der implizite Verschuldungsgrad ohne US-Staatsanleihen betrug 8,2x und sank zum 19. Oktober nach Anpassungen für erwartete Tilgungen auf 7,9x.
• Das Management beurteilt Agency-MBS mittelfristig weiterhin positiv und verweist auf breitere Spreads, ein begrenztes Angebot sowie günstige Repo-Bedingungen, betonte jedoch, dass für eine nachhaltige kurzfristige Erholung eine größere Stabilität bei den Renditen von US-Staatsanleihen und der Volatilität erforderlich sei.

Wichtigste Finanzdaten

Geschäfts- und Portfolioentwicklung

Die Rahmenbedingungen für Agency-MBS verschlechterten sich gegen Ende des Quartals, da die Renditen von US-Staatsanleihen um 70 bis 80 Basispunkte stiegen. Auch die Zinsvolatilität nahm im September deutlich zu, was die Hypothekenduration verlängerte und zum Verkaufsdruck beitrug.

ARMOUR ging mit einem historisch niedrigen Verschuldungsgrad und einer begrenzten Netto-Durationsposition in das dritte Quartal. Dennoch weitete sich der optionsbereinigte Spread des Portfolios um 20 Basispunkte aus, wodurch die Netto-Durationsposition zum Quartalsende auf 0,38 Jahre stieg.

Im Laufe des Quartals erwarb das Unternehmen auf Nettobasis MBS-Vermögenswerte im Wert von rund 1,4 Milliarden US-Dollar. Ab Ende September veräußerte es Vermögenswerte von rund 900 Millionen US-Dollar, hauptsächlich DUS-Pools und ältere MBS mit hohem Abschlag, die sich besser als der breitere Hypothekenmarkt entwickelt hatten. Laut Management dienten die Verkäufe der Unterstützung der Liquidität und des Ziel-Verschuldungsgrads, während gleichzeitig relative Gewinne realisiert wurden.

ARMOUR plant, Erlöse und Tilgungen in MBS mit moderatem Abschlag zu reinvestieren, insbesondere in Kupons, die sich im September am stärksten ausgeweitet hatten. Das Management schätzte die potenziellen hebelwirksamen Renditen je nach Kupon auf 15 % bis 18 %.

Das Portfolio bleibt ausschließlich in Agency-MBS und DUS-Wertpapieren investiert. Mehr als 96 % der MBS-Bestände sind Specified Pools mit günstigen vorzeitigen Tilgungseigenschaften. Angesichts von Zinssätzen für konforme 30-jährige Hypotheken von nahezu 7,5 % erwartet das Management, dass die Tilgungsgeschwindigkeiten in den kommenden Monaten weitgehend stabil bleiben.

Das Swap-Hedge-zu-Repo-Verhältnis erreichte rund 89 %, den höchsten Stand seit 2022. Fast die Hälfte des Portfolios wurde über den verbundenen Broker-Dealer Buckler Securities finanziert, was es ARMOUR ermöglichte, Overnight-Repos selektiv zu nutzen und Laufzeitenprämien gegebenenfalls zu vermeiden.

Ausblick des Managements

Das Management erwartet, dass der für die Ausschüttung verfügbare ausschüttungsfähige Gewinn im kommenden Quartal etwa auf Höhe der Dividende liegen wird, betont jedoch, dass das Unternehmen keine formelle Prognose abgibt.

ARMOUR behielt seine monatliche Stammaktien-Dividende von 0,24 US-Dollar je Aktie bei. Eine am 29. Oktober zahlbare Dividende wurde für die am 15. Oktober eingetragenen Aktionäre beschlossen, und eine weitere Dividende von 0,24 US-Dollar ist am 27. November an die am 16. November eingetragenen Aktionäre zahlbar.

Das Basisszenario des Unternehmens sieht eher einen moderaten Zinserhöhungszyklus der US-Notenbank Federal Reserve als eine Wiederholung von 2022–2023 vor. Das Management verwies auf die September-Prognosen der Fed, wonach selbst einige falkenhaftere Mitglieder eine weitere Erhöhung um 25 Basispunkte im Jahr 2026 und eine weitere im Jahr 2027 erwarteten.

Das Management erklärte, dass Kapazitäten zur Erhöhung des Verschuldungsgrads vorhanden seien, sobald sich die makroökonomische Lage und die Inflationsentwicklung klären. Zudem geht es davon aus, dass die verhaltene Hypothekenvergabe, das begrenzte Nettoangebot an Agency-MBS und günstige Repo-Bedingungen den Portfolio-Carry stützen werden.

Risiken und wichtige Beobachtungspunkte

• Eine anhaltende Inflation könnte zu einer weiteren Straffung durch die Federal Reserve und höheren kurzfristigen Finanzierungskosten führen.
• Eine weitere Volatilität der Renditen von US-Staatsanleihen könnte die Hypothekenduration verlängern und eine nachhaltige Erholung der Agency-MBS-Kurse verzögern.
• Geopolitische Spannungen, steigende Haushaltsdefizite und eine erhöhte Begebung von Unternehmensanleihen könnten die Volatilität am breiteren Anleihemarkt verlängern.
• Die Bilanzverkürzung zum Jahresende könnte die Repo-Märkte belasten, wenngleich das Management die Repo-Liquidität und -Spreads Anfang Q4 weiterhin als günstig beschrieb.
• Aktienrückkäufe müssen gegen die Liquiditätsanforderungen und die Möglichkeit, zu einem späteren Zeitpunkt erneut Kapital aufzunehmen, abgewogen werden.

Wichtigste Aussagen aus der Fragerunde mit Analysten

Das Management gab bekannt, dass sich die Vermögensverkäufe im September auf 5- und 10-jährige DUS-Pools sowie auf ältere Kupons mit hohem Abschlag konzentrierten, die sich überdurchschnittlich entwickelt hatten. Es wird erwartet, dass die Erlöse wieder in Kupons von 4,5 % und 5 % sowie in ausgewählte höhere Kupons reinvestiert werden, die von langsameren vorzeitigen Tilgungen profitieren.

Zur Kapitalallokation erklärte ARMOUR, dass das At-the-Market-Programm in der Regel genutzt werde, wenn die Aktien nahe am Buchwert gehandelt werden, und Rückkäufe erwogen werden, wenn der Abschlag attraktiver wird. Das Unternehmen gab im dritten Quartal rund 12,4 Millionen Stammaktien für 205,7 Millionen US-Dollar aus und kaufte Ende September 363.700 Stammaktien zurück.

Das Management bezeichnete die Liquidität als die wesentliche Einschränkung bei der Abwägung von Rückkäufen gegenüber einem zusätzlichen Portfolio-Hebel. Die Stresstests des Unternehmens berücksichtigen bereits extreme, der COVID-Pandemie ähnelnde Szenarien; nach der Volatilität im September wurden keine Änderungen vorgenommen.

ARMOUR strebt weiterhin einen Absicherungsmix aus rund 80 % Swaps und 20 % Futures an. Das Unternehmen lässt begrenzte Durationsbewegungen innerhalb enger Bandbreiten zu, um eine übermäßige Neuausrichtung des Hedges zu vermeiden, wenn die negative Konvexität von Hypotheken die Risikoposition des Portfolios verändert.

Das Management wies zudem auf Anzeichen hin, dass Fannie Mae und Freddie Mac während der Volatilität im September aktiv waren. Mit verbleibenden Kapazitäten von mehr als 100 Milliarden US-Dollar unter den regulatorischen Obergrenzen sieht das Unternehmen die GSEs als potenzielle Auffangkäufer, wenn die Spreads von Agency-MBS breit sind.

Vollständiges Transkript der Telefonkonferenz

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Good day, and welcome to the ARMOUR Residential REIT's Third Quarter 2026 Earnings Conference Call [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to the CEO, Mr. Scott Ulm. Please go ahead, sir.

Scott Ulm

Good morning, and welcome to our third quarter 2026 conference call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper; as well as our Co-Chief Investment Officer, Sergey Losyev; and Desmond Macauley. Let me turn the call over now to Gordon to run through the financial results.

Gordon Harper

Thank you, Scott. By now, everyone has access to ARMOUR's earnings release and our Q3 2026 investor presentation, which can be found on ARMOUR's website, www.rmmerit.com. This conference call includes forward-looking statements are intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995.

The Risk Factors section of ARMOUR's periodic reports filed with the Securities and Exchange Commission describe certain factors beyond ARMOUR's control that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements. Those periodic filings can be found on the SEC's website at www.sec.gov. All of today's forward-looking statements are subject to change without notice. We disclaim any obligation to update them unless required by law. Also, today's discussion refers to certain non-GAAP measures. These measures are reconciled with comparable GAAP measures in our earnings release. An online replay of this conference call will be available on ARMOUR's website shortly and will continue for 1 year.

Our results for the quarter reflect the significant widening of mortgage spreads in the last 3 weeks of the quarter as interest rates rose and the markets reacted to a more hawkish Federal Reserve. ARMOUR's Q3 GAAP net loss related to common stockholders was $327 million or a loss of $2.26 per common share. Net interest income was $83.7 million. Distributable earnings available to common stockholders was $102.3 million or $0.71 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for interest income or expense on our interest rate swaps and futures contracts minus net operating expenses. Total economic return was a negative 12.9% for the quarter.

During Q3, ARMOUR raised approximately $205.7 million of capital by issuing approximately 12.4 million shares of common stock and $2.5 million of capital by issuing approximately 123,000 shares of preferred stock through our at-the-market offering programs. We also repurchased at the end of September 363,700 common shares. ARMOUR paid monthly common dividend of $0.24 per common share per month for a total of $0.72 for the quarter. We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. On October 29, 2026, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on October 15, 2026.

We've also declared a cash dividend of $0.24 per outstanding common share payable on November 27 to holders of record on November 16, 2026. Quarter end book value was $14.55 per common share, down 17% from June 30, 2026. Our most current available estimate of book value is as of Monday, October 19, and was $14.65 per common share, which reflects the accrual of the October common dividend I discussed previously.

I will now turn the call over to Chief Executive Officer, Scott Ulm, to discuss ARMOUR portfolio position and current strategy.

Scott Ulm

Thanks, Gordon. Agency MBS faced a challenging late third quarter as macroeconomic pressures overwhelmed the favorable supply-demand dynamics that had supported the market earlier in the year. Persistent inflation prompted the Federal Reserve to raise rates by 25 basis points in September, its first hike since 2023 and signal further tightening. Expectations for higher policy rates, geopolitical tensions, rising fiscal deficits and increased corporate debt issuance drove broad repricing of global bond markets.

Treasury yields rose 70 to 80 basis points over the quarter, while interest rate volatility spiked in September. The sharp increase in yields extended mortgage duration with associated selling pressures likely amplifying the MBS sell-off as the speed of the move sideline potential buyers. Today, mortgage spreads sit near their widest of the year, offering more compelling valuations that support our constructive medium-term outlook. Near term, we believe a sustained recovery in mortgage prices would require greater stability in treasury yields and volatility. Renewed inflation pressures could prompt further Fed tightening action, while geopolitical tensions could prolong market volatility.

Our base case remains a shallow Fed hiking cycle rather than a repeat of 2022, '23 as labor market continues to show no buildup in wage pressures, reducing the risk of a wage price spiral. This view is broadly consistent with the Fed's September summary of economic projections in which even some of the more hawkish participants anticipated only one additional 25 basis point hike in 2026, followed by another 25 basis point increase in 2027.

Looking ahead to the fourth quarter, the underlying supply-demand backdrop remains supportive. Elevated mortgage rates continue to constrain origination and net Agency MBS supply, while limited financing activity and favorable repo conditions support portfolio carry. GSE retained portfolios declined modestly by a reported $2.5 billion in July and August, following substantial purchases earlier in the year, likely reflecting paydowns that were not fully reinvested rather than outright asset sales. We believe Fannie Mae and Freddie have resumed buying during September's volatility, consistent with their role in supporting the Agency MBS market, although official holdings data remain pending. With more than $100 billion of capacity remaining under their regulatory caps, we continue to view the GSEs as meaningful potential backstop buyers at wider spreads. I'll now turn it over to Sergey for more detail on our portfolio.

Sergey Losyev

Thank you, Scott. ARMOR REIT entered the third quarter with historically low leverage and limited net duration exposure, which helped us navigate heightened market volatility. Still, the portfolio's option adjusted spread widened by 20 basis points with approximately 80% of that widening occurring in September. This, in turn, pressured book value and pushed implied leverage, excluding treasuries to 8.2x and net duration exposure to 0.38 years by quarter end, higher yet still historically moderate levels. The available liquidity stood at an ample $1.02 billion at the end of Q3 and is expected to remain near that level through the end of October.

ARMOUR net added approximately $1.4 billion of MBS assets over the course of the third quarter. Starting in late September, we sold approximately $900 million, consisting primarily of DUS pools and deep discount seasoned MBS. Those sales capture relative out performance versus the broader mortgage market and help maintain our strong liquidity position and portfolio target leverage. We plan to eventually reinvest these proceeds and paydowns into moderate discount priced MBS, which have widened the most in September and present the most attractive opportunities with levered returns running from 15% to 18% depending on the coupon.

Portfolio prepayments averaged 8.5% CPR in Q3, down 25% from the prior quarter. With the 30-year conforming mortgage rates nearing 7.5%, we expect prepayment speeds to remain broadly stable in the coming months, providing greater predictability for portfolio earnings and improving convexity profile of our mortgage assets. ARMOR's mortgage portfolio remains invested exclusively in Agency MBS and DUS securities, consistent with its strategy since the 3rd October, since the third quarter of 2020.

And over 96% of our MBS holdings are concentrated in specified pools with favorable prepayment characteristics. Our hedging strategy is designed to manage duration risk across the yield curve and limit exposure to rising funding costs. Our swap hedge to ratio -- hedge to repo ratio stands at approximately 89%, its highest level since 2022. While we believe markets may be pricing in more Fed rate hikes than will ultimately materialize, our hedging position is designed to protect earnings against further increases in short-term rates should inflation and macroeconomic pressures persist.

Despite the New York Fed suspension of treasury bill purchases in August, repo spreads to SOFR have remained tight. Supporting stable portfolio funding through September's Fed rate hike, and we financed nearly 50% of our portfolio through affiliated broker-dealer Buckler Securities, securities, where we selectively use overnight repo to avoid paying term premiums on longer-term financing.

While Chair Powell has moved quickly to establish policy task forces, we do not anticipate significant changes to the Fed's balance sheet policy that would disrupt repo or Agency MBS markets, particularly ahead of the midterm elections. And back to you, Scott.

Scott Ulm

Thanks, Sergey. Monthly dividends are central to ARR's investment approach, providing shareholders with a regular source of income. We set our dividend at a level we consider appropriate for the medium term. Recent volatility in interest rates and Agency MBS spreads has pressured both our share price and book value, resulting in an unusually high dividend at current market prices.

We remain constructive on the Agency MBS market and believe many of the factors driving recent volatility are likely to resolve over the coming months and into next year. Thank you for joining today's call and for your continued interest in ARMOUR.

Operator

[Operator Instructions] and our first question for today will come from Doug Harter with BTIG please go ahead.

Fragen und Antworten

Douglas Harter

Hoping you [Technical Difficulty] Could talk about the decision to sell assets in September and kind of the thought process of taking leverage up versus selling assets?

Sergey Losyev

This is Sergey. Yes. So we sold primarily 5-year and 10-year DUS pools as well as some of the deeper discount coupon with maybe 50 to 60 WALA seasoning. This type of collateral really outperformed in September. So the opportunity presented itself to manage our liquidity, manage our leverage and also take profits on some of these assets that have outperformed. So it was really a combination of things that were driving that trade decision. We plan to reinvest the proceeds into some of the coupons that have widened the most over the course of September, particularly 4.5, 5, but as well as some of the higher coupons, which have benefited from slower prepayment environment here at higher rates.

Douglas Harter

Great. Appreciate that. And then on kind of the capital actions, you guys both issued common and preferred, but also bought back stock. Just hoping you could talk about kind of what levels you kind of see interesting to kind of undertake kind of all the various capital actions that you did in the quarter?

Sergey Losyev

Yes. Sure, Doug. Look, we look at issuing under the ATM when we have an attractive price, which means that we're pretty tight to book value when -- and that was sort of the story of the first part of the quarter. And the story of the second part of the quarter is we hit some volatility and saw that we were a good ways away. And that's when we feel we should always be on both sides of the market. And so we just felt the need to put a mark in the book there and buy back some stock. So it's really just that simple. Of course, the moment when you're seeing attractive prices to repurchase is probably when you're also very mindful of liquidity. So we keep that in mind, too, but there is always our sense that we need to look at both sides here.

Operator

The next question will come from Trevor Cranston with JMP please go ahead.

Trevor Cranston

You made the comment towards the end of the prepared remarks about the dividend yield being unusually high right now. Can you maybe expand on your comments around that and how you guys are thinking about the appropriate dividend level today in light of where you're seeing current market returns?

Sergey Losyev

Well, look, we've had volatility both in stock price and book value, which has driven those down. Our view remains constructive here and that a number of the factors that have driven this are -- have a good probability of resolving, maybe not this month, but over the not too long period. And so that plus the fact that we feel that our -- while we don't give forward guidance, as you guys know, our earnings available for distributions, we think, are going to be in the range of the dividend for the coming quarter. So given all of that, also the fact that we've already announced November should give you a sense of how we're feeling. Suggests that there's really, really nothing to do here. And we are where we are on this.

Operator

The next question will come from Marissa Lobo with UBS.

Unknown Analyst

I just wanted to ask about leverage, just given where wider mortgage spreads are and what you described as favorable repo conditions, how are you feeling about the willingness to add to leverage here? Or -- and what is your target range?

Desmond Macauley

Yes. Marissa, this is Desmond Macauley. So our leverage as of Monday, October 19 was 7.9 turns. That's excluding our treasury loans and making some adjustments for expected paydowns. We are comfortable with that level. In the near term, there could be bouts of volatility in the period leading up to the elections.

In addition, recent inflation data has been higher than expected. In the medium term, however, we are constructive given mortgage spreads around the wides of the year plus improved technicals and fundamentals in the mortgage market. So we do have dry powder to add leverage as warranted when we have greater clarity on the macroeconomic outlook as well as inflation.

Unknown Analyst

Okay. Great. And on policy, I mean, just given the increased use of housing policy to influence rate and MBS demand, how are you incorporating that risk into your portfolio construction? And do you see it as primarily an upside to book value or impacting prepayments ultimately?

Desmond Macauley

Stability is good. I think there's a lot of desire to improve affordability here. But we're -- I think across -- we are so out of the money. You'd have to have a pretty good move that would start to impact the optionality there. So delighted that there's focus on keeping stability and improving mortgage rates. But I would -- my sense would be we are -- we've got a long way to go before we start to see a different prepayment environment.

Operator

The next question will come from Jason Weaver with JonesTrading.

Unknown Analyst

This is Val Almar filling in for Jason Weaver. So that duration moved up to 0.38 from about 0. Was that a deliberate position or extension you haven't fully hedged yet there?

Desmond Macauley

Yes, Jason. So as you know, we came into the quarter with our duration relatively flat. And we managed it very closely to a moderate duration profile even with a sharp increase in rates. Now in the back end, we are targeting around flat duration but within our band. So we allow that duration to move as our negative convexity plays a role in moving duration in the back end. So -- and then in the front end of the curve, we target just a very slight positive duration, given that we think market pricing of rate hikes are more than we anticipate. So overall, we manage our duration across the curve. We are looking to keep it within very tight bands. But at the same time, we allow some amount of duration movement so that we don't rehedge very frequently. Does that answer your question?

Unknown Analyst

Yes, it does. And then just a quick one here. With the Fed now, hiking, are you thinking about like swaps versus futures from here or...

Desmond Macauley

We still like on a nominal basis, about an 80-20 mix of swaps versus futures. At the longer end of the curve, we think swaps fair value -- and on the shorter end of the curve, we favor using swaps largely because of swap spread volatility. But overall, the mix that we are still looking at is about 80% swaps, 20% futures.

Operator

The next question will come from Timothy D'Agostino with B. Riley Securities.

Timothy D'Agostino

Just in mind, I know we kind of talked about share repurchases and leverage. But I guess just trying to see if you have any thoughts or providing color on whether you see any kind of friction between the 2 What -- where earlier you talked about repurchasing stock when it's attractive. But then again, you mentioned in another question about additional dry powder to add leverage where you see opportunity.

So I just want to know how you balance maybe share repurchases versus adding more leverage? And then if you kind of feel any friction between the 2 as you kind of progress through the quarter, if you see attractive options to put capital -- leverage capital to work while your stock continues to trade below book value.

Desmond Macauley

So the issue is -- leverage is largely an output here. The real driver is managing liquidity. So that's where that question really comes in, which is -- how are you feeling about liquidity? How much do you want to spend? Also, always mindful that when you take the stock back in, it may be both -- it has both a cost and it may not necessarily be a good time to get it back out there. So you have all of those factors that weigh on your question of, gee, is now the time to buy some stock back. So you have to see something pretty compelling, and it also has to fit in the context of how you are managing your overall liquidity levels, and that weighs on what sort of quantum you're willing to do. I think we're probably conservative in making that decision. But as I said before, we always feel that we have to be willing to be on both sides of the market. I hope that's responsive.

Operator

The next question will come from Jason Stewart with Compass Point.

Jason Stewart

A question on liquidity and funding markets. Sometimes we see the funding markets become a little skittish going into the end of the year when volatility is high. How are you feeling about the depth of repo today and managing that going into the end of the year?

Desmond Macauley

Jason, this probably was one of the few quarters when the quarter end repo was extremely liquid and soft. So we continue to see tight repo to SOFR spreads here early in Q4. We do expect some balance sheet tightening up into year-end. But we also know that the New York Fed stands by in terms of reopening their RRPs or the T-bill purchases that we were doing earlier in the year in case liquidity gets tight in the banking system. So from that standpoint, repo has really been the shining star here of the market and giving us a lot of confidence into year-end even.

Scott Ulm

And I'd also note, while we're active with 20 counter parties across the global street, if you will, we also enjoy the ability to finance about half of our portfolio through our securities affiliate BUCKLER. And that also gives us access across the curve as we mentioned, the ability to go overnight if we wish as well as access to term opportunities. So we try to keep all of those options open, which has been extremely helpful when we found things a little bit tighter, even though that's not the situation we're in this quarter, thankfully.

Jason Stewart

Got it. Okay. That's helpful. And then on the GSEs, I mean, I think we all know how much capacity is left to buy and where we're at in terms of spread levels. Are you looking for any markers for increased activity and maybe as a catalyst for spread tightening from the GSEs?

Desmond Macauley

Yes. So I mean, look, we had an official confirmation from pool data in September regarding GSE activity. We've also seen them cut down the specified pool auction sizes throughout the month. So some of these signs do point to the fact that they were engaged in the market. We haven't seen the official numbers yet. Of course, they're coming towards the end of the month, but it will be interesting to see back in March, when we had similar spread levels, volatility spike, we saw them policing in the market from the spread standpoint. So we do expect some buying to show up.

Operator

The next question will come from David Storms with Stonegate Capital.

David Storms

Just curious with the volatility in September, have you made any changes to the liquidity stress testing that you do? Or are you kind of looking through some of this volatility and keeping a focus on the medium term?

Desmond Macauley

Yes. Dave, the stress testing that we had even going into September is pretty robust, and we test our liquidity on the extreme stress scenarios. We use COVID-like levels in terms of what took place at that time. So we like to be consistent there. We've not had to change anything. We continue to monitor our liquidity. And that obviously plays a role in terms of how we look at leverage too in deciding whether we want to increase leverage or keep it around these levels. So haven't changed it, but it was pretty robust. And extreme stress testing scenario we had going into September. And that enabled us to stay focused and not have to sell assets because of liquidity.

David Storms

Understood. And if I could sneak one more in, just maybe a clarification on where you expect Fed rates to go. It sounded like in the prepared remarks, you were in line with market expectations on fund rate cut this year and one next year. But then an answer to one of the questions, it sounded like you were positioning yourself to be a little more dovish on the short end of the curve, thinking that markets were pricing in early rate cuts. Did I miss something there?

Desmond Macauley

Markets are pricing about 3 to 4 cuts by the end of 2027. And our view here is the base case is 2 cuts by the end of 2027. So we are on the dovish side of the market. But if you compare our view to the dot plot by the FOMC, that's really on the hawkish side. The most hawkish members are expecting just 2 cuts, one at the end of this year and one at the end of next year. The reason for us having just a slight positive duration in the front end is because we do feel that market pricing of Hikes is more than we anticipate. Does that clear that up?

Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Scott Ulm for any closing remarks. Please go ahead.

Scott Ulm

Thank you very much. We appreciate your interest in ARMOUR REIT, and thank you for attending this morning.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.