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 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 that impact 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 incorporate 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, prepayment, 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 throughout the first three quarters of 2017 as interest rate volatility remained extremely low. In this environment, investors continued to favor higher risk assets, as evidenced by the strong performance of U.S. equities and the tightening in spreads associated with a wide range of credit-sensitive fixed income assets. In contrast, the spread between Agency RMBS and other hedge instruments such as U.S. Treasuries and swaps widened throughout much of the period until the Federal Reserve (the "Fed") announced on September 20, 2017 that, commencing in October 2017, it will begin to taper its reinvestment of proceeds from its bond portfolio. Following the Fed's announcement, Agency RMBS spreads tightened meaningfully, outperforming interest rate hedges, benefiting our net asset value and confirming our thesis that the Agency RMBS market had already priced in much of the reduced Fed support.
The strong performance of Agency RMBS, combined with the accretive impact of common equity raises, increased our tangible net book value to $19.78 per common share as of September 30, 2017, from $19.25 per common share as of June 30, 2017, an increase of 2.8% for the quarter. Year-to-date, through September 30, 2017, our tangible net book value improved 1.4%, from $19.50 per common share as of December 31, 2016. Including $1.62 of dividends paid per common share, the economic return on our tangible common equity was 9.7% for the first three quarters of the year.
The yield curve flattened during the first three quarters of 2017, as the Fed continued to gradually increase short term interest rates by raising the federal funds rate by 50 basis points. Over the same period, the 10-year yield on the U.S. Treasury declined by 10 basis points, causing the yield curve to flatten and contributing to a modest compression of our net interest margin. Inclusive of our TBA position and excluding "catch-up" premium amortization cost due to changes in our constant prepayment rate forecasts, the net interest margin between our assets and our cost of funds decreased to 1.41% during the third quarter of 2017, from 1.45% during the fourth quarter of 2016.
The funding landscape for Agency RMBS has remained favorable throughout the year in terms of relative interest rate levels and funding capacity. Our aggregate cost-of-funds, which includes the implied funding cost on our TBA position and the cost on our interest rate swaps, increased 31 basis points to 1.46% as of September 30, 2017, from 1.15% as of December 31, 2016. The average rate on our repurchase agreements increased 38 basis points to 1.36% as of September 30, 2017, from 0.98% as of December 31, 2016, while implied funding costs in the TBA dollar roll market remained favorable at 15 to 25 basis points below comparable