continue to qualify as a REIT; and
remain exempt from the requirements of the Investment Company Act of 1940 (the "Investment Company Act").
The size and composition of our investment portfolio depends on investment strategies we implement, the availability of investment capital and overall market conditions, including the availability of attractively priced investments and suitable financing to appropriately leverage our investment portfolio. Market conditions are influenced by, among other things, current levels of and expectations for future levels of interest rates, mortgage prepayments, market liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market and evolving regulations or legal settlements that impact servicing practices or other mortgage related activities.
Our Risk Management Strategy
We use a variety of strategies to reduce our exposure to market risks, including interest rate, prepayment, extension, liquidity and credit risks. Our investment strategies take into account our assessment of these risks, the cost of the hedging transactions and our intention to qualify as a REIT. Our hedging strategies are generally not designed to protect our net asset value from "spread risk" (also referred to as "basis risk"), which is the risk that the yield differential between our investments and our hedges fluctuates. In addition, while we use interest rate swaps and other supplemental hedges to attempt to protect our net asset value against moves in interest rates, we may not hedge certain interest rate, prepayment, extension or other market risks if we believe that bearing such risks enhances our return profile, or if the hedging transaction would negatively impact our REIT status.
The risk management actions we take may lower our earnings and dividends in the short term to further our objective of maintaining attractive levels of earnings and dividends over the long term. In addition, some of our hedges are intended to provide protection against larger rate moves and as a result may be relatively ineffective for smaller changes in interest rates. There can also be no certainty that our projections of our exposures to interest rates, prepayments, extension or other risks will be accurate or that our hedging activities will be effective and, therefore, actual results could differ materially. Furthermore, since our hedging strategies are generally not designed to protect our net book value from spread risk, wider spreads between the market yield on our investment securities and benchmark interests underlying our interest rate hedges will typically cause our net book value to decline and can occur independent of changes in benchmark interest rates. For further discussion of our market risks and risk management strategy, please refer to "Quantitative and Qualitative Disclosures about Market Risk" under Item 3 of this Quarterly Report on Form 10-Q.
Trends and Recent Market Impacts
The fixed income markets were relatively stable during the first quarter of 2017, especially when compared to the significant interest rate movements experienced during the fourth quarter of 2016. Investors continued to favor higher risk assets during the first quarter as evidenced by the strong performance of U.S. equities and the further tightening in spreads associated with a wide range of credit-sensitive fixed income assets. Conversely, Agency RMBS underperformed slightly versus our interest rate hedges, which led to a small decline in our net asset value per common share for the quarter.
The performance of Agency RMBS during the first quarter was likely negatively impacted by growing concerns related to the Federal Reserve’s (the “Fed”) potential tapering of its Agency RMBS and U.S Treasury reinvestment program. We believe the price of Agency RMBS now largely reflects the market’s consensus expectation that the Fed will begin to gradually reduce the size of its balance sheet sometime in late 2017 or early 2018. Although Agency RMBS spreads could move wider in anticipation of the Fed’s actual reinvestment announcement, putting downward pressure on our net book value, wider spreads could provide an attractive investment opportunity and we would consider operating with somewhat higher leverage in that scenario.
During the first quarter, our tangible net book value per common share declined $0.19 per common share, or 1%, to $19.31 as of March 31, 2017 from $19.50 per common share as of December 31, 2016. Taking into account $0.54 of quarterly dividends, AGNC generated an economic return of 1.8% on tangible common equity for the quarter.
Funding dynamics remained favorable during the first quarter. Our repurchase agreement funding cost increased during the quarter in anticipation of the Federal Funds rate increase in March but was largely offset by a corresponding increase in the variable rate received on our interest rate swaps and improved implied funding levels in the TBA dollar roll market. We also expanded our use of our captive broker-dealer subsidiary (“Bethesda Securities”) during the quarter, increasing our repurchase agreement funding through Bethesda Securities to $7.6 billion, or approximately 20% of our repurchase agreement funding as of March 31, 2017, from $4.7 billion as of December 31, 2016, providing us greater funding diversity at favorable terms relative to traditional bilateral repurchase agreement funding. As of March 31, 2017, our “at risk” leverage was 8.0x our tangible equity, up slightly from 7.7x as of December 31, 2016.
As of March 31, 2017, our interest rate hedges equaled 90% of our funding liabilities and net TBA position, largely unchanged from December 31, 2016. Our net “duration gap,” which is a measure of the risk due to mismatches that can occur between interest