Leverage at period end was calculated by dividing the sum of the amount outstanding under our agency MBS repurchase agreements, net receivable / payable for unsettled agency securities and debt of consolidated VIEs by the sum of our total stockholders' equity less the fair value of investments in REIT equity securities at period end. Leverage excludes U.S. Treasury repurchase agreements.
Leverage at period end, including net TBA dollar roll position, includes the components of "leverage (as of period end)" plus our net TBA position outstanding as of period end, at cost.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of American Capital Agency Corp.'s consolidated financial statements with a narrative from the perspective of management. Our MD&A is presented in seven sections:
Liquidity and Capital Resources
Off-Balance Sheet Arrangements
Aggregate Contractual Obligations
The size and composition of our investment portfolio depends on investment strategies implemented by our Manager, 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, evolving regulations or legal settlements that impact servicing practices or other mortgage related activities.
Trends and Recent Market Impacts
Fiscal year 2013 was a challenging and difficult year for all fixed income markets and the agency MBS market was one of the hardest hit sectors. As a result, our net book value per common share fell.
Throughout much of 2013, MBS investors struggled with uncertainty surrounding when the Fed would alter its open-ended, third quantitative easing, asset purchase program, commonly known as QE3, as stronger than expected employment reports early in the year triggered a significant rise in interest rates. For the year, the 10 year U.S. Treasury rate increased 127 basis points and 30 year mortgage rates increased 138 basis points. Agency MBS prices came under pressure and underperformed other fixed income instruments as agency MBS investors significantly pared back their holdings in anticipation of a sooner-than-expected Fed tapering of QE3. As a result, agency MBS spreads widened relative to U.S. Treasury and swap rates. This spread widening was the primary driver of our 24% decline in net book value per common share over the course of 2013.
In December 2013, the Fed announced that it would begin reducing the pace of its asset purchases by $10 billion per month beginning in January 2014, split equally between agency MBS and U.S. Treasury securities. The Fed stated that additional reductions to its asset purchases are expected "in measured steps" at future meetings, but that it is not on a preset course and the level of future asset purchases will depend on the pace of economic activity. The Fed stated that it would maintain its policy of reinvestment of principal payments on its holdings of agency MBS into new agency MBS. The Fed also extended its guidance on short-term interest rates and stated that it will likely maintain the current exceptionally low target range of 0.0% to 0.25% for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below its 2% longer-run goal.
Given the challenging market conditions and significant volatility throughout 2013, we prioritized risk management over near term earnings. To this end, our Manager took steps to reduce leverage, increase our hedge positions and alter the composition of our asset portfolio. Together, we believe these actions meaningfully reduced our exposure to rising rates and widening agency MBS spreads.
These portfolio rebalancing actions, however, drove a decline in our net spread income per common share. Our more defensive positioning, coupled with the reduction in our net book value and taxable income, caused us to reduce our dividend.