AGNC Investment (AGNC) 31 Jan 192018 Q4 Earnings call transcript

Company Profile

Participants

Katie Wisecarver	IR
Gary Kain	CEO
Bernie Bell	SVP and CFO
Chris Kuehl	EVP
Peter Federico	President and COO
Aaron Pas	SVP, Non-Agency Portfolio
Bose George	KBW
Doug Harter	Credit Suisse
Rick Shane	JP Morgan
Mark DeVries	Barclays
Trevor Cranston	JMP Securities

Call transcript

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Operator

Good morning and welcome to the AGNC Investment Corp. Fourth Quarter 2018 Shareholder Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. turn over to in Katie like Relations. Investor would the to conference Wisecarver I ahead. go Please

Katie Wisecarver

Keith, you, Investment earnings quarter AGNC you Corp.'s XXXX Thank call. thank fourth and all for joining

results the Officer; I'd to slide presentation meaning statements Safe statements Harbor begin, XXXX. Before not of statements are the AGNC. on only accessed available presentation, the the update website, they statements our and protection through are obligation link that be agnc.com, filed actual Securities are to forward-looking the cause the within of Certain section is or Private to by those the conference Gary any the at be of such the statements contain Earnings to periodic fact Reform recitations Chief both call subject corresponding conference unless to presentation slide the are of corner. XXX-XXX-XXXX, that telephone to this Kain, Reform reports view presentation presentation XXX-XXX-XXXX and Safe on of forecast link dialing during in An and Executive in Exchange on Participants contained our to Bell, and with historical we XXXX differ from as subject this QX our number the All Select conference notice. President; forward-looking and the in the those and this to SEC's by Senior turn many Vice the Aaron that, the to include Securities and section Financial right by on statement. All call ID intended Kain. With control of over lower outcomes or AGNC's turn like impact the presentation audio extent I'll Factors Bernie and XXth in Copies results Harbor Gary the Commission. click Chief recording Vice website This www.sec.gov. President. are Presentation to made on included to webcast Pas, today XXXXXXXX. disclaim slides Chief call. included factors date factors could Kuehl, view We Federico, review be forward-looking website archive Risk the forward-looking law. streaming provided February Act To Officer; and of President beyond slide without are due and Actual for materially the Litigation call Peter Act. the Senior statements of materially could option click forward-looking change from available the constitute the of call Executive the Operating differ and President can in Chris Officer; the Vice will required the

Gary Kain

political pushed year, decline Chris of basis Thanks, X.X global and Katie. rate treasury financial of points X.XX%. minutes, the world markets quarter Volatility pickup in in in Nominal global and at AGNC. widening quarter, before regions significantly fourth policy and the U.S. their the X.XX% increased rates. rates rallying the in expected XXXX points during to widen to equity X.X move significantly your rose growing XX on significant Fed spreads weaker basis swap widened The year As spread risk And trade, The of growth, many some in was XX fourth spread spreads thanks the to a between close given XX the interest curve November half markets. discuss MBS to early an volatility to Interest first suffered will quarter initially three risk and off in in December. dropping the since tenure few wider the credit worse materially. all financial fueled the concerns off interest sentiment around of high as dysfunction during the you dramatic agency inter-quarter of substantial during in in before for quarter. interest hit

the the bulk a offset in modest implied book and it from quarter. larger However, more the spread rates to value including which led in of the combination was of in volatility, of in MBS. increase all This decline options, realized we benefit for X% the widening due reduction the and premiums risk to elevated the embedded prices than those

the the attractive investments. and credit spreads it deployed on very have and Although, S&P during interest than $X fourth the the has half run, returns experienced capital more portion hurt this spreads wider good of moves end, that MBS significantly volatility billion largely XXX the on recovered at we in losses enhances yet expected our quarter. quarter patiently short are Since approximately valuations. new backdrop, the of during quarter also retraced unchanged. from Against the agency we MBS rates value the QX our book Implied of a also raised

and spread when value the our projection rates include and agency QX improvement since modest we following and recovery may our of have in decline, book Given spreads the recovered estimation, yesterday's FLMC year-end MBS almost of half meeting. the

and on we and surprised fed. global in economic toll the to see a economy. given But be continue its not is short ultimately would continue the we will the especially that U.S. assets believe the rebound take to risk ahead, run, slowdown dovish more Looking recent real

over will view materially is few is that something hiking yesterday's FLMC a we support call the interest and and attractive XXXX. I potentially stance. MBS that cycle began for like hiking Bernie to point, At is just pretty a have to This anchored slow, results spreads would its likely to rate to Fed AGNC ago. shifted a has few review meeting wider months returns the Our to the the much interpretation favorable this of with inflation for us expected environment given coupled is policy abandoned would This deal and big quarter. more growth symmetric turn remain bias that this more over. should as that Moreover, our

Bernie Bell

Gary. Thank you,

per had and excluding we comprehensive The per loss the a am four, and of slide net to spread dollar several share all quarter-over-quarter share, quarter, share. and net catch-up per income all of spread decline $X.XX $X.XX factors. Turning and attributable $X.XX income was dollar for was to

First, of delay as on capital acted net deployment temporary our spread the decision to drag fourth quarter during income. a

and our earnings our further. contract we reduced believe portfolio on we agency spreads commented allowed end last leverage At were we September, our proactively because October, As of wider. to sold the at bias MBS call, we

billion raised during the the occurring capital capital, we including the quarter, $X majority quarter. of new of our During November, with we began to purchases gradually redeploy in the later

by the fourth average the X.X been by long would impacted less average just a average Normalizing to see because also our times [ph] under X our for have the times As our notably netbook is equity When result, comparing base our or value. was decline for in times this capital relative our quarter-over-quarter, calculation prior and to noticeably the the decline, fourth is leverage leverage this X.X lower quarter quarter. asset asset quarter. difficult leverage balance balance tangible of for than

significant cost another swap net was as greater our spread Second, timing detail, funding decline interest differences in income and discuss hedges. impacting with and factor higher Peter will the associated our rate

a the income third the termination quarter-over-quarter the portion contributed management management agreement quarterly of MTGE, loss the following in the quarter from of of small fee Lastly, decline.

in a fee received included compensated for of of equivalent termination in years our and portion all the income, income. the termination we AGNC third not we of that spread dollar fee Although any the quarter fee three have net

overtime X% that $XX.XX the declined As book per quarter to movements to generating cash do on largely the spreads. due end or movements consequently Gary I flow the discussed, should capability highlight to spread net of impact portfolio But book our alter net existing want the the as to share of matures. also net spread wider portfolio as spread value tangible mortgage value due reverse not and of

X at five, the year we X.X our slide leverage effectively of times leverage deployed, for versus ended to Moving new our times quarter. the with at capital risk average

six. slide to Turning

total loss year, of and dollar had net the a spread of we For $X.XX and comprehensive all income. $X.XX

was including Our total negative dividends. year return for economic the of X.X%, $X.XX

total a value and year creative both book we've of a was new net billion earnings. of During to capital, equity $X.X which raised the

internally capital our an new turn enhance I that, Chris With over operating advantage. managed cost low mortgage to significantly rate will market. to the AGNC's efficiency, As the further it benefiting discuss

Chris Kuehl

Thanks, Bernie.

seven. lower, concerns related XX to rates Let's quarter respectively. policy. slide increased growth moved both slide the tables the rallying points path five rates see of In and can with seven, that and global you Fed basis Volatility for sharply of XX-year asset a swap to and future turn expectations materially elevated XX and reset interest the rates during spreads given in fourth the on

basis spreads mentioned, in with OAS option on as wider, As and option basis particularly around adjusted Agency the levels the December MBS adjusted This unchanged of wider. fourth lower approximately spreads materially XX to wider the MBS XX-year ending static MBS rate on implied points XX In X in adjusted points quarter increase were or spreads volatility MBS Gary market basis contrast, were points, cost static increased option rather materially the large spread XX in were option spreads average. month divergence with change on was embedded largely widening to in spread itself. XX spreads the than in static while versus XX

is rates spread with in large NAV static widening anticipated a hedging Simply static spread a have therefore rates metrics with Thus period X can the the in assumptions spread first the in spreads lower are in and into in the our the stabilized, move both points. tightened Agency quarter interest and rates. changes put, have the two right nominal Some OAS of in this, overstate and impact to quantifying lies in associated sharp quarter, performance approximately MBS MBS far basis like and important answer measures. between declines

position the driven as the slide fully X.X by investment generally weak mortgage of the can half our In left relative by declined implied equity the eight, billion, during to the XX top deploy that charts that chart notice slide you increased to approximately rates in billion, repo. to TBA portfolio you'll financing see fourth Turning quarter. roll raised we on eight, the lower

pools weaker bias favor of the financing will implied to rates roll Over near-term, versus likely holdings our specified TBA. continue in

TBA a while investment and two the added XX we've more our pools position portfolio billion. last net growing quality a total specified on XX.X basis by reducing in little the than high quarters, Over approximately billion

of to relatively December valuations. we lower discuss I'll and supportive weak higher now be will lagging funding Peter continue move with the have management. to after pools the of call turn expect the and rates Given the first these quarter the in to in over float specified tailwinds quality move risk that pool outperformed levels deteriorating combined and quality roll TBA rate and

Peter Federico

activity. Thanks, I'll financing Chris. with of a brief review start our

quarter, fourth the Fed basis in another the points. in higher XX materially were particularly December costs term rates financing Our raised short as

In a honor Fed, addition markets to rates began we in of to X%. in a funding market the in drove the remained saw Repo of money the the when government outflow Day late higher rest billion of surge funds in the and from year-end Repo throughout range Mourning nearly the move President materially mid-December to of the rates and with of unusually Bush. National turn tight year X% $XX peaked were money year. just repo ahead elevated trading over of rate

more rates approximately As year-end up average November. at end have four Since two-point percent X.X%. repo to levels September being rate today to three at year end end a the repo the costs result, two-point of funding returned of average X.XX% with at our our percent and normal increased from

our XX Our our quarter improvement for also swaps. by on takes offset only fixed from The X.XX% higher. with up quarter it funds average pay on swaps higher the of reset. a aggregate rate prior despite the costs normal repo swap cost received three-month book our during the of increased was divergence the being to lag being LIBOR of This received just is materially basis as points portion time

the Over swap will LIBOR with average the book received rate. next couple of prevailing the rate gradually our three-month converge on quarters,

and and activity our XX hedge slide a to provide Consistent our the hedging assets, with $XX.X of to positions. portfolio both in XX, position. Turning swap rate increases quarter in summary with risk interest increased the billion growth during our we Treasury and our

ratio our liabilities. hedge XX% remained high at Our of funding

As X.X years our given rates, previous. declined rally the in X.X gap expected, interest duration from the

I'll to operating yield being As the negative benefit, still MBS turn risk gap minimal we benefits that, despite the curve earnings to risk last rally. mentioned are over positive portfolio flat complexity Gary. duration there back call quarter, of important and the the and the given and bridge sharp With the management a with to

Gary Kain

Thanks, questions. to open Peter. up And at this point, the we'll call

Operator

Yes, thank you.

the comes first [Operator We answer Bose session. the will with question Instructions] And KBW. from George now begin question and

Bose George

wanted some morning. you in right spreads about of first I the relative Actually, quantify that just end about good you Hey number improvement implies spreads then widening are ask can to help terms the to where and what ROEs? XQ of now spread gave and just

Gary Kain

guess take obviously we relative to the basis tighter is in which the end materially we're wider were at about spreads give or than points let's I of QX. Well still say of where quarter the five end static

Fed's value of side So, spread obviously of in and last I view global economy. still the have the from the see the think we picture mean recovered and I my the that the as in obviously still side introductory almost in we investment may change the being kind favorable, it, book I rate in also big very quarter mentioned a mindset change both perspective, environment loss remarks the but on given on

Bose George

And that on core compare the guys basis if a it you to whatever you like just XX.X-ish. quarter ROE is generate this

incremental Our better than returns that?

Gary Kain

you to assume advantage overtime on a do That example. X.X% an as Spreads X.XX rough calculation you are to still X.XX three-month XX funding with so and X% spread yield let's say, just nine to of times TBA and LIBOR. mortgages. close XX Yes, of XXX basis coupons static leverage gives a margin base ROEs, pretty point repo versus if

do big expense very a again a that much expectation where pretty low the basis. XX. of a on that's it'll can to versus close And space given ROE are ROE still XX% - differentiator You're close And to net expenses operating growth AGNC pretty higher. then, ratios

than materially XX quarter look like Importantly things better like is So, the a what better look than things what ago.

Bose George

in helpful. on views portfolio? great. look the forward. thoughts given just you expectations Okay, going rates What at That's changes Thanks. that? your terms on you. hedging or market, of Thank And the how Any the potential are in and the then

Gary Kain

made was mortgage environment. It's not got all? question a given a And a management any commented convex portfolio, necessarily, with that this is it positive last in the response duration hedge gap you our when is Why we duration. - to do durations manage duration zero best was position risk not great run call, the the I remember And question, duration negatively that where - drift, gap you why inexpensive on we zero gap don't you sense. at and how

the and of the drift is symmetrical the Now our portfolio kind more in duration much two direction.

to and ago going when a risk into higher is of much to view was extension were rally contraction and likely said, think better So, a was saw. a is the rates if a quarter almost further that we difference all That like today what risk contract are Whereas spreads our it closer. the was risk to between widen I we'll more rally to that into duration tend perform selloff. there

to is like in especially picture near-term looking how it a the right rates. now a little it maybe up increase we we'll from given positive that in think that's back we're the But still at where rates I maintain now. gap if So, duration

Bose George

Okay.

Peter Federico

between this that we that replace matures it our funds point of some of often impact rolls wouldn't is each Peter. big off when hedges. of last to change have swapping I our to ultimately higher of the at sort out looking swap thing composition want often overall add do I Doug, the portfolio cost overlooked, view respect portfolio. you're beyond But it. and and is music hedge thing our quarter, in to quarter I with Gary an expect to one would this had and think just mix One the gave I is that a you treasury level

because $X.X $X example, into asset a years that into the increased For swaps enter when XX portfolio out had the entered negative and years market point in added our quarter carry in profile swaps out points. billion quarter a swap in the matured. fourth from billion new fourth you new I the worth of on $X or we by XX example, fourth profile, negative about swaps, carry basis quarter, billion. three more And have a typically new of average we of if for yet to they portfolio

on as So, X your at I that's you them to mute the do fourth benefit cost to in into basis in months to cost that our mature we the and you point if to will pay from incremental we'll expect somewhat an continue the swaps roll about then on points billion get leg in have is said, our by portfolio as quarter, get, we over us. look swap. it's that we that out the going a quarter. LIBOR And negative three new And rate a market, $X typically cost, just XXXX, actually the portfolio have as rising

So, I just add to wanted that.

Bose George

helpful. Okay, Thanks. great. That's

Operator

Thank from And the question Credit you. Doug Suisse. Harter with next comes

Doug Harter

book you of Gary, recovery dynamic? opportunity look increase that of thoughts your return leverage, you advantage wider value would capital. are Thanks. the kind about thinking take about Obviously, talk leverage in How to expectations. to raise push to can down that the more as

Gary Kain

the leverage mean, as time of other haircuts and we our I issue. we've we wanted perspective presentations Sure. the rates right even the both spread leverage, of view environments to this But thought so. given first call, wasn't which perspective more a stressed it sense leverage post on it discussed. from as that I lot spread be on last opportunity the on stable and and just environment. a crisis than made and off, at it we higher the was about were do running what We've spoken Well, the markets say changed to Well, would they call are have the on improved that, much dramatically, is matter

it's And very so, and comfortable leverage we're higher with point this at prudent. think

to with our in but come from down book that leverage at value, your book So, improvement is the year-end. we disclosed improved, at question, values yes, has the all from not X, even still its,

our for in perspective environment balanced leverage stress attractive environment So, I Fed and on can't the higher environment. of is it's I of expectation much feel And I the first the environment, about the the We again, investment change time good enough margin this spread in with rate a we stands the an think interest the lower. kind that's mean, kind and not mean, has on years basically. more

question. hopefully So, that answers the

I I and environment the think you equity favorable also asked equity for the investment about obviously to, described equation. it's

The that ratio that book always we are factor. very that at other factors is talk key important to we about a obviously price look it

Another the increases. one often as as that we've expenses an is company managed as equity our discussed our is drop grow internally base operating fact we

more deploying quantities in buy in state terms that TBAs very versus relevant space is in how the pools has to certainly in. TBA smaller that I running investment specified you helps Given operating point to as quickly if relative in term our can that's certainly expenses some for an is that often are you're equity equation. That large quickly as end them the thinking a capital raise think factor low side absolute both least want can is much you the us the this a There liquid equity equation at how how serve to one and much at and it now other much specialness and that does TBA are gotten or right position and you very about on TBAs. obviously preference for headwind of our has become weaker it's us comfortable this big factor

we're for environment it, at TBAs future hand, this they're point pools where factored it to doesn't the is in into about has raising we may that to reverse size too pools and longer they and more that distant optimizing it acquire other to stat not environment that mix an this added equation. equity, some clear the careful I preclude On available equation. and want very be be in are just the take in anyway current something than to AGNC so while specified specified ample attractive in

Doug Harter

the last average the kind kind protect a of acquire? end on the spread of saw that much you quarter a intentional, of of was of the widening to pools versus of the up bit following trying yourself that for Just that little of kind guess point kind kind Gary taking lower to leverage I coming state taking longer from specified factor that how

Gary Kain

unrelated for the to we pools great question of for given buy good entry So pools. TBAs specified way mortgage Essentially, the need whether to all point it or for not. was and an time address related specified when we and consistently XXX% follow-up In a that want is quote, them our and we intentionally we're mindset was volatility the QX basis. around pools week the looking this the

active you very that can I we're couple so, market. And Chris a think And give numbers. in of

we, like two last numbers the over quarters, think billion - the I we've $XX bought probably

Chris Kuehl

On a net basis.

Gary Kain

timing want, can the if run raising in On specified is issue. do $XX you But if a issues end, get the then And or that but billion so we're pool was basis okay. - whether to - were quality two they end state that day to high unrelated into net in specified the not, off - we or will a your equity you relative that investment pools. TBAs, in we'll

continue overcome end what. process to and we investment if and is have going raise capital over a TBAs, while It timing your - of we the of to bigger a size, no to be specified - deficit, which us bigger take terms acquiring it's state if over of will matter affect and again, into first specified If the pools pools. really in going the doesn't deployment we're step

Doug Harter

Gary. Thanks,

Operator

comes the Morgan. with And Shane Rick next JP you. from Thank question

Rick Shane

shift more thanks response taking highlighting you what a symmetric a guys in I outlook. to question. strategic describe rate as are guys, my Look, for Hey would

this sort does to lesson exposure about outlook that and You if we of it the outlook wrong? the point mitigate to tail at and there commentary about costs symmetric rate mentioned for that also risk sense higher was leverage, proves be of that more to think When declining, adding swaps voluntary increase softening, make you swaps. additional

Peter Federico

could. question. Yes. answer Obviously, We good our effects. the have increased it obviously not Rick, Thank is swaption you. portfolio Peter. It's

can our that exercised the and our the, in of money. were actually the swaption last swaptions delivery see You we've swaps have portfolio quarters couple when taken in shrinking of we

options we of become X obviously, see XX interest the those evident it when protection So into protection if the more out. the it against gave plays be prove not today. expectation price look of those will benign to may us right get to coming to be in rate is the down, at are Gary cheaper. further, general to options money look stable There environment. the that But cost And particularly balance level the more used months. at over a going rate we wanted out more materially of is, The next for them, important and Even how of environment we when overall be option rates our interest as and those obviously, view rate the is events, our the at is that, put the way which wait it's we'll we to like it And times though, we and have level look because seen and often valuable. options would our view on the really is rates. protection, to higher we tail on It's we our risk rates, is much implied from right. that may described, comes cost when it. options view will find down implied and between are when volatility look the forward volatility the the We've market and

Chris Kuehl

but where volatility over for was of given the last volatility it elevated But year. most in helps, decline still

so, see we don't a yet this as buying think And entry options? I point great to

Rick Shane

tail correct against again, But yourself an term, rate actually in protecting the of off down is, where the assumption of that importance well? leverage in hedge outlook near it. risk is if environment as your cost taken go will the that you've in the increases my Got

Chris Kuehl

we'd materially all No. all, think point. opportunity portfolio the an - comes that's like higher We against option something would If interested very bigger if be in. down excellent a leverage would I be

excellent point. So,

Peter Federico

market expectation to obviously, his did going meetings is what Fed our take it's again, the And about But get the the yesterday. next to of couple just you're hear about sort cheaper. what And important the to will time some Fed posture. digest here be right, says

Rick Shane

you guys. Great, Thank much. very Okay.

Peter Federico

Thank you.

Operator

you. of And Barclays. the Mark comes question Thank DeVries from next

Mark DeVries

Yes, thanks. of some I and impact, could some deployment repo that, issues was impact from the costs? weight delayed the you for the the highlighted quantify hoping on of of spread share the kind us. you The issues income per on of capital some of the around

Peter Federico

This Yes. chime can and in. Gary start, I'll Peter, is

was was and a funding of the costs, the the greater half in As about fee, the capital probably Bernie year-end MTG mentioned, general, due higher deployment obviously bit little magnitude about capital. but that difference a penny of pressure than beyond was to deployment half and between the

Funding were probably. deployment than in capital two this in those factors half about change but income. the net and quarter-over-quarter big the So, little larger difference of costs or half a bit of of, the were the sort spread

Mark DeVries

Thank somewhere being you you you. and between elaborate point the impact could then the static spreads? the was reality I on hoping more about it. Got Chris, on Okay. - And made

Chris Kuehl

Sure.

So, you out the implied option immediately spreads lower volatility and and or implied after rate versus go and the don't I to implied volatility. a or than move increase mean the options vol the or realized extent of lot move move in the disconnect purchase between increase was which the volatility, movement cost, is the OAS that the static in higher and

cost sense. that a in back expect can option that You earn to

And far declined. has seen volatility so, date, implied we've so to quarter

static that so far of and this disconnect some OAS spreads differential so, reversed And in spread, quarter. has between

are And other curve, move into out curve. to that metric a that performance an effectively ratios hedge is simply anticipates life the durations, lower thing on versus or shorter spread are The than spreading mortgage metrics on under point average our the into static rates. which the point point to our and incorporates

part that's so it. of a And big

Gary Kain

take just step quarter. you Just theoretically, back is, if what a I'd from this add

quote, the just you a say, of kind given OAS good capturing capture in stays change same for OAS volatility If move is will for? assuming is the spread rates. better what expected

expect we option, captures Raleigh into mortgage as to more in the a spreads that. money. the So, OES widen option the gets prepayment

essentially number to up. spreads On And OAS the ignores the other whereas will volatility. goes changes static widen if hand, volatility implied in

kind OAS and the for And the number And so, ours for changes of component to is most do which spread is better normalizing static impact other capturing move. volatility, or both the rate P&Ls. better investors' excluding

Mark DeVries

Thank you. That's helpful. Great. very

Operator

from question our Trevor you. comes last Securities. Cranston with Thank And JMP

Trevor Cranston

All right, thanks.

ones. two Just quick

you have around of talked seeing of XX-XX? up the you of funding the repo sort guys First you're costs going today were where year. impact the about the on rates at they where comment Can end to versus

Peter Federico

Hi, This Peter. Trevor. is Sure.

As and seen where the of that in occurred quarter September tightening the substantial previous right, of particular. in were I the based were have the than the we December just one. from we I tightening on improvement at the year XX Fed average, some fourth year would end on fact last end effect just of not higher the distorted. weeks And We're say at our said, rates points basis really pretty we've two would a really the probably end we of had month. the expected, at two funding Because

it the as of was that tightening So, in December. as tightening the full effect well

our around XXX. rates seen have repo are some average said, I improvement today as we're We

last the near funding XX that actually we're term next it fed to the of quickly all relative seen change reasonable range the shorter of a I markets, liquidity, the there's seem that is, basis is markets, coming so pretty levels couple But market three near I forward lot pricing repo going into relative of that repo LIBOR more points XX will I money again, the basis to LIBOR quarters, XX we be now to We if we've out start the funding points to in stays a in XX think our term rate see that change also proxy XX invert think minus here. going think probably term. I outlook people think to and but in for the should the level. to where the months about over the the

Trevor Cranston

you. Got

of to guys have helpful. but was And the over any credit if and second you've with has the book most there's fourth the the book opportunities add quarter for seen spread all credit focus to the the widening on curious question reason volatility, rate in then agency found we've quarter? Thanks. obviously that's Okay, been I first or

Aaron Pas

This is Sure. Aaron.

we spreads, kind do aren't we're and very is mortgage agency so the risk outlook assets. in returns We at transfer of point opportunities see weeks a providers - by prepared favorable over in credit market. January. this credit bit $XXX in we up about a interest whole risk on took Gary U.S. so increase adjusted in the you hold and risk see balance last mentioned risk said took few added risk in bit a by million. in little remarks, up economy credit QX space So, our the that his Having while can our We've mean as as we more our spreads the little risk I investible

have these to We to portfolio levels. but therein like risk see materially growing some at added the underline continue don't fundamentals

Trevor Cranston

Got it.

Okay, thank you.

Operator

have And concluding turn now the we to like completed Gary remarks. the I'd question you. for and Thank session. answer Kain call back to

Gary Kain

there been have is queue? one may the more there think question in I

Operator

Yes, Bose a from there KBW. George follow-up from is question

Bose George

don't are TBA just you pools? guys. but spreads the Hey said know already, on effective spreads, Thanks. where versus Actually if - specified I this

Gary Kain

so OAS So, basis? you're the just points a pickup, more plus statics favorable the like front is going an static five OAS versus. spreads they on have Chris basis to talking basis. - about like you're on on And There OAS are again an better generally

Chris Kuehl

Yeah, rate. at its versus and that's money it current looking that on and you're I I depends respective mortgage mean generally coupon mean the speaking

for for to, a XX say XXXK around pay a third trade year ticks. XX pools example loan take let's So, just typical us or of they're referred balance HLB up pools as to bucket max with

to story So, a interest or basis at discount where it generally some But are the way moneyness similar alternative speaking Again, a source - a cheaper pools convexity risk. value on rates give negative strategy. on to far fair effectively specified of buy that options you to your call cover mortgage the back spread the full options the embedded to to a [ph] point, buying the of trade in theoretical spec XX varies depending because points. Gary's that position, option could X of a significant you're back it

So, generally that's speaking then. where pick OAS the from they comes trade and up

for traded discount at year XX%. to theoretical around us currently Third XX% fair value probably

Bose George

That Okay. makes sense.

So, points? basis back at to XX the envelope, it's sort of X

Gary Kain

Yes.

Chris Kuehl

Yes.

Gary Kain

or of quality specified it kind and not strategy simple be production One up where putting and what pull pool but characteristics new the just it's so our you're tick call pay starting quality high that there's are in something place. pools bit spread up thing of is as they real and can you specs no you so up is repo, specs a you're mix just high we on for where same specs as with with end component give only a reasonable a

of specified mix, them think TBA. today that's that then a small and as the component talked about. cheaper pools pools there's There's more new portfolio should Chris sizeable kind these are still you So, in a there's component average pools mix a kind a pretty high-quality of better it's than a theoretical

Chris Kuehl

The rates net coming XX specs only that specs roles of quarter is to add with to the forward well. versus basically amounts trading we're to going that and I measurements profile of of and some why the the versus on carry respective last so, optimistic sort the last reason improved over that's contributes two year the as flattish TBA a of if on in the on part with case TBA the valuations fair repo or thing off MBS spreads would has

Gary Kain

are prepayment they're Right, speeds have obviously so component key you slower. and

Bose George

a Thanks great. Okay, lot.

Gary Kain

you. Thank

Operator

floor back And for the you. return like to concluding would Gary Thank remarks. Kain I to

Gary Kain

forward for thanks on call. to look And you we And Great. to participation QX everyone XXXX the your speaking next quarter. with

Operator

presentation you. may disconnect call now Thank and your you for attending has you lines. today's The now Thank concluded.

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