AGNC Investment (AGNC) 31 Oct 192019 Q3 Earnings call transcript

Company Profile

Participants

Katie Wisecarver	Investor Relations
Gary Kain	Chief Executive Officer
Bernie Bell	Senior Vice President and Chief Financial Officer
Chris Kuehl	Executive Vice President
Aaron Pas	Senior Vice President
Peter Federico	President and Chief Operating Officer
Douglas Harter	Credit Suisse
Bose George	KBW
Rick Shane	JP Morgan
Trevor Cranston	JMP Securities
Matthew Howlett	Nomura/Instinet

Call transcript

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Operator

Good morning, and welcome to the AGNC Investment Corp.

Third Quarter 2019 Shareholder Call. All participants will be in 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.

to Relations. conference like Wisecarver to now Investor in would turn over the Katie I ahead. go Please

Katie Wisecarver

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

Safe I'd to begin, we Before review the Harbor like statement.

be of XXXX. conference outcomes are the Reform Act. that the to statements Reform of and presentation Private results the control from made statements subject of facts by Securities extent to the presentation materially subject beyond within this intended statements of recitations are to as those constitute not Litigation call factors due forward-looking Actual Harbor and of All are without date the impact Safe and the This of in notice. statements could forward-looking All are protection slide historical included to this contain differ to such corresponding change forward-looking they meaning the AGNC. the forecast Act of provided presentation many only

that We could statements are Certain Copies on accessed forward-looking conference disclaim and website November differ of law. Factors Exchange the available Risk XXX-XXX-XXXX, Securities this with be is unless presentation telephone those XXth to in on the or AGNC's our sec.gov. will by number and the the cause XXX-XXX-XXXX the section our required any through obligation from An available XXXXXXXX. the forward-looking can statements to factors at Commission. recording reports be update dialing in included by archive of ID website, filed contained actual are results periodic SEC's materially and

in call. lower Webcast XXXX and Call the section presentation, website, right Earnings corner. slide Conference the slide both our the view the Presentation and option in the or slides for agnc.com, streaming view the audio click click link on To to to during Select the presentation QX the on link turn

Operating Executive President Chris Chief on Participants Bernie Financial Bell, Gary Vice Officer; Kuehl, Kain, Peter Vice Pas, Federico, President; Senior call Executive Vice President; and Senior and and include Officer. Chief today’s Aaron Officer; Chief President

I'll over turn Gary With Kain. the to that, call

Gary Kain

Thanks, your you for Katie, in and thanks to AGNC. all of interest

decelerate activity impacted quarter, During all Economic activity U.S. growth the weakness was in globe. major continued the evident trade almost the of to regions with tensions causing the quarter. also third in during by slow business global to

intra in fell. Against the rates In this prices deteriorating around market accommodation backdrop, interest conditions, banks interest further equity central financial increased declined response volatility to and globe financial supplied via the as and the quarter, easing. yesterday. renewed twice the cuts its during rate rate of part the funds’ well, cutting ECB third the case quantitative and FED quarter did The again then

Despite rate third of with The a flatten rates that was yield [stands] move in about quarter to inverting intra September at quarter falling QX. XX interest to X.XX%. [ph] during by basis before XX cuts close early giving move year two the with the yield the up a points FED, the the of to the significant times continued treasuring through couple X.XX% actually curve down on almost

all of sub-sectors were erase August a improve. monetary the generally to XXX policy. risk with slightly other quarter the the the easier higher attributable spreads quarter, of to weaker GSE did hand part was and S&P the during weakness The recovery able transfers though credit Credit on closed large including

as TBAs. higher Specified the the fast higher. materially coupon pushed and risk TBA the quarter interest on an curve rate continued while still volatility, inverted speeds, spreads their MBS other outperformed Agency wider hand trend widening pools in premiums

the MBS treasury rates Finally, the underperformance and of repo remained significant in quarter. spike headwind a repo given well-publicized in agency the late

remarkable AGNC’s return able positive with X.X% book largely performance was economic described, Given as the value were quite backdrop unchanged. a we to QX just I generate

the optimization discussed specific on call. both strong AGNC’s level, significant MBS of attributed hedge and the holdings financial earnings can of high last repositioning portfolio a our At our results to our be

impact financial can currently roll While the should net be our that income believe prospective our materially and results, in many sustainable the the we QX spread over dollar factors improvements near-term. majority in of

the over to I call my business remarks prospects close term. the look high to prepared level a turning for Before Bernie, want our the intermediate over at with

First income mortgage At wides. some of static currently credit all, multi-year measure, option-adjusted spreads, spreads time, are near regardless of are your same fixed multi-year or choice of the near valuations sitting tights.

boosting pressures MBS. running rate have long and the interest credit prepayments MBS by explained yield all outsized put curve, be an TBA can combined market to pressure material fast funding while sector the equity psychonomy supply, This bull volatility, agency agency inverted on

headwinds like repo these of the actions factors to fully curve inverted in this fundamental by at abate said, should some funding the priced given the significant be beginning and That the announced are FED. and point

the speeds given Additionally, AGNC non-event of for the portfolio. the largely impact a of fast TBA is our composition

supply, technical in in the gross MBS of the winter slower of given underperformance the function several larger which rates, a combination was mortgage the backup increase largest also somewhat probably the the purchases, the past months FED a MBS of should From as mortgage perspective, driver and origination net over period. improve, significant the and

FED’s economy reduced rate insurance the the potential throughs risks On trade rates. the the interest a backdrop interest and somewhat downside favorable have of more should for current cuts the Agency The for be three front, MBS. and

economy the pressures recent other to underwhelm interest inflation the keeping non-existent relatively risk the rates bound global range the despite likely are on hand, near-term. move in equities should credit continue over and On and

all optimistic over at results. and ahead prospects this strong business look year Putting review to our we financial especially our against we as next ask or Bernie the increasingly I’ll point, so the the backdrop our this of for together, quarterly results, about are

Bernie Bell

Gary. you, Thank

in $X.XX taken recent dollar actions quarter. roll largely $X.XX to hedge quarter Turning we share Slide had $X.XX comprehensive per and the for am quarters. up from income excluding the of to X, total Net spread income catch-up per was due second repositioning share

third benefit until quarter. the we actions we up expect see of our third As during earnings the by from Led these increased XX.X% to quarter quarter. CPRs of the last rates, of projected as last the call, mentioned to lower of as end do XX.X% not

As Chris actual materially also generic discuss the than speeds MBS. remained lower on but quarter higher will prepayments coupon for our other CPR XX.X% at observed shortly, increased,

interest of to mentioned, unchanged rate and despite book quarter, spreads, Gary largely the down at As end per the wider mortgage the significant for share share was fluctuations tangible $X.XX net per quarter. value $XX.XX

we $X.XX our the year-to-date paid positive quarter, had return economic to quarter return for of for bringing of third X.X%. Including a X.X% dividends the economic

unchanged estimate book of couple our September. announce net in weeks, is a from October largely value will XXst We our but current

our Moving risk tangible ratio at leverage unchanged was XX times slide average X, our to at net equity.

end average quarter, the the of at of our lower was slightly As X.X third times. leverage

just third $XXX million of outstanding repurchased quarter. over opportunistically common we front, per capital our or share stock at an during the $XX.XX X% of over slightly price the average On repurchase

discount an These approximately accretive at to net price-to-book average repurchases of were value. book X%

Importantly, the future current demonstrates action of this our had economics stock quarter, end the management’s stock the compelling. commitment stock program. remaining we as repurchase aggressively of when repurchases approximately third are And for available under repurchase million to $XXX

our was preferred preferred this not end settled and the public In quarter our late fixed Series priced largest in early coupon in the floating lowest rate our issuance leverage was stock. offering transaction September, rate transaction X.X% $XXX capital E reflected to of stock October, million of to-date. our fixed calculation. both we This Because

redeem announced we preferred Series Lastly, November recently XX, capital. cost that reducing our on preferred meaningfully X.XX% we to stock will total B our

discuss agency With Chris that, market. to I to will turn the the call over

Chris Kuehl

Bernie. Thanks,

X. Let’s turn Slide to

month to good off got in the stable a quarter assets third The risk with start rates July. of and performing well relatively

However, to end with rallying basis quarter then treasury picked sell-off and early mentioned volatility the XX at as points up X.XX%. only materially in X.XX% XX earlier, to in September, Gary now August, year it’s

and and yield depending coupon, volatility heightened rates, With spreads curve. but MBS the performance widened hedge category position lower specified on varied on

XX specifically, third twos by tenths, the points More then ours like be resulted quarter spread would yield measures. static hedges flattening position during in shorter performance better the hedge the OIS biased curve towards materially term implied with or basis

the declined Turning to portfolio investment see XX. you $XXX.X slightly billion to X, of as Slide that September can

we generic to lower while MBS During $XX billion, the the spreads, coupon quarter, in more holdings. continuing attractive XX coupon approximately X% year reduce higher or added at

coupon led lower to has lower the pressured reduction spike been origination heavy especially continued by This driven valuations, and coupons. portfolio. have by volumes supply, the on supply the inherent MBS compelling in limited in MBS in risk Spreads considering the FED’s prepayment

is Additionally, the outstanding now benefit floats the in $XX of from cap. time excess the production in reinvestment MBS should billion month FED’s run-off per that coupon bid over

updated that a Turning of last Slide included version we X, quarter. provide we to an slide

through between TBA X.Xs the As the of XX% pools XX% you CPR. and see in table, on deliverable can paying are X.Xs that represent the right-side

that keep AGNC’s year note retain very on we important prepaying still that up lower some speeds speed XX our to relative the coupon, pay portfolio elected have prepayment In short positions. contrast, above and because our are It’s well to are behaved. profitable to they well TBA Xs for to remained average X.Xs

continue Impart our TBA XX subtract on our CPR fastest the likely even we holdings to Xs, billion this aggregate equal because coupons, believe pickup likely over portfolio average we migrate coupon an CPR. to marginally. generic For biased lower short, XX $X near-term in to and you from to for would reason lower more our if will speeds pool is CPR our example, the if our speed amount drop

Lastly, we’ve roll the levels recent cycle. included slide, price drops most October or this on the November trading roll for dollar average

you carry versus higher dramatic a see, there coupon coupons lower is TBA. As on can in difference

implied but of excluding represents reminder, of prices a one income XX price of drop in cost, the hedges. funding X%. month’s As inclusive The worth seconds are

improves positive of advantage coupons XX their the carry can you coupons the the year see, hedges yield actually curve. higher given clearly lower longer have inverted do durations, while not, and importantly, carry, relative for Xs inclusion As

due refinanced. on improved prepayment burn valuations that and lead time, better out will coupons coupon the speeds we fast prepayment the roll have should Over TBAs. on higher the coupon within given higher borrowers slow responsive is have This flood. recent higher most TBA to as so should are poorly reason levels dollar warranted very seen are to speeds rolls or The trading assumptions

given characteristics and in remain higher the under over expect flood, near-term. of coupon rate current currently to rolls the adverse of levels we the However, many the pressure pools

sector. Aaron now to I’ll the to turn non-Agency over the discuss call

Aaron Pas

and X update Slide Thanks, to credit provide Chris. our I’ll turn a on investment. Please quick

Our quarter. roughly in non-Agency $X.X remained or billion X% of the equity portfolio constant at third

the prepayments, of we within new as the no changes outperformed hedges the well CRT landscape, The majority into portfolio of bonds subordinated longer changes rally and were the attractive in in light by investment-grade space. looked rotation these in faster some driven reduced as our to RMBS exposure prepayment as the issue

remain at largely credit and CDX Over Within spreads lower supportive more spreads rates, the well marginally quarter, the performed CRT, for while risk with spreads CMBS unchanged. generally mixed beneficial yield, the credit assets as for the high was were CRT capital of investment-grade dunning particularly structure. and parts leaking stance lowest wider, CMBX, Fed’s mortgage accommodated somewhat

all-time end, equity spreads quarter firm, Since remained while highs. stood have relatively at

However, the prices on particularly weaker there concern few corporate credit last This in leveraged signs shifting can of over weeks. and higher be C and loans in spreads investor side, credit companies. decline are for triple leveraged the some for wider a seen

into issued the tightening. we see likely for more price limited sell would recently further On and risk opportunity appreciation we MXs transfer front, credit tightening somewhat in and a

I discuss funding management. risk call to Peter that, the will over turn and to With

Peter Federico

Slide summary XX. Thanks, with Aaron. I’ll on start financing our

quarter from repo rates average funding in quarter. in X.XX%, points the third the decline, Despite down quarter. elevated Our second the prior remained repo XX cost the was basis

treasury market collateral. to to mid-September, in significant unusually overnight September oil repo balances related spike withdrawals settlements, a carrying factors FED tax shock resulted In meeting, treasury uncertainty mortgage a due for high repo both rates corporate to the related confluence the and price including in payments, cash of the and

the incremental The in impact of two our September funds, negatively but over weeks repo given cost was it impacted quarter. only relatively of small, the funding shock affected last the

on benchmark between month other the XX, environment. difference three repo the funding three on graphs The month we additional Slide top graph two repo highlight the shows the funding between levels provide and divergence LIBOR. rates. The and color On

still As funding although unusually were they the cost somewhat improved line this volatile. by measure during shows, the quarter,

is The rate, index average the difference FED shows overnight one over overnight for the which funds’ month’s expected proxy rate bottom period. and good the same month between rate graph swap the one a repo

act, occurred which market catalyst that for be FED’s in The to market to out a FED the mid-September, rate. repo primary large a spike clearly to relative benchmark dislocation over business. and be for the shows The being in pronounced so positive disruptions in the time, the so turned public our the repo should

term to repurchase open operations the First, overnight market added the quickly and liquidity and funding market repo operations. rates down. pushed significant daily back These reinstituted FED

plan treasury importantly, more and the least term months, purchase open in at to and bills as operations respectively. and $XX Second six market billion upsized announced month per as its well approximately mid-October, FED for billion billion $XX their of to $XXX overnight

Together, these system could the add of more billion over actions liquidity $XXX months. six the to than next

are will that soon faced such, repo that XXXX headwinds optimistic the we As abate. we throughout

That said, time next funding given to and sheet headwind fourth banks purchases in FED’s will year. that constraints large to improving a materially fact balance remain quarter the take expect the accumulate, before at we the

swaptions funding our aggregate by The provide to we of $XX XX, increased cover billion was Slide to Turning increase was summary over us which increase portfolio, and addition driven hedge of swaps that shorter attractive in and just in lock the a to liabilities. XXX% our The swap of through levels. portfolios. our swap both predominantly to in allowed funding all-in position our term additions

to We believe we but our and lower rates of swaps our only SOFR. material track a from our These we indexed exposure time. over also eliminated LIBOR, not actual also swaps substantially better swap carries swaps transitioned LIBOR-based and OIS to pay funding percentage away portfolio

All of rates. executed at prevailing these were market swaps

substantial remarks, provided As benefits. Gary swap has us opening our already his mentioned in portfolio

As positions. a terminated second of materially size swap reminder, a quarter, we while swaps short increase and longer-term significant of treasury fixed the book amount our the pay in we also

yield on curve, economic In and quarter. aggregate, the our out turned return the the of our value concentrated third hedge be positive book for which to these front-end significant a book actions in

our funds in on aggregate carry points the cost measure our the quarter to Additionally, swap benefited basis portfolio to X.XX%. dropped which third XX

continue XX, gap significant we duration sensitivity. the rally slide rebalance our On and in the duration portfolio. over our we our gap flat quarter interest show hedge to rates, Despite gap remains duration as

for addition, and hedge market and as composition. has consideration on determine we increased In our the show portfolio is important extension gap whole and the risk a we how duration for table, and as portfolio our

With that, Gary. I’ll to turn the over call back

Gary Kain

Thanks, Peter, the point, we’d at open to to this lines questions. like up and

Operator

question Suisse. from And with Douglas Instructions] [Operator first the Harter Credit comes

Douglas Harter

kind core earnings – upside dividend in mentioned think the are the that significant you as this that context, Thanks. earnings how you Gary, about you quarter? of [indiscernible] quarter’s kind you I view Could dividend improvement sustainable. talk this in about given the of thinking of versus

Gary Kain

Sure.

net in just QX prepared in my we mean, income repeat and remarks, to was feel, dollar a So, I I said versus there do what obviously, spread large difference QX. roll between

what is And the be term. I long-term, to sustainable the that the majority looks sorry, so, believe over shorter over increase we that, of am that

measure. an always of and it’s the the sole But a are of outside can what That net about know we driver roll dividends, to said, knowledge But income getting and dividend choices. market been importantly, lot important mean, that there control said, more cares spread factors we’ve or around things. question our it’s I always affect dollar the our never

potential conditions think we earnings we of almost realistically, that returns will and the or bought portfolio economic then embedded is, the assuming kind of and about the in think we our current a if the we And today, at do assumption what portfolio look are. that market true

never in if our that believe. that’s net performance are to dollar kind past, driver the than plus we dividend roll the predominant the the minuses But of still and and the the quite dividend. over I recognize spreads you they stress want And been AGNC’s of at They and certainly income attractive exceed decisions. we look of –

Douglas Harter

from mix and of Peter, your new Gary. that, is about away you talk moved of just Thanks, mentioned you LIBOR-based what of you Could between And more of today? kind then, is kind hedges the LIBOR-based. right. All as non-LIBOR-based

Peter Federico

Sure, Doug.

it to good away OIS, LIBOR-based about there I over from SOFR. predominantly – mean, or and XX% is felt The XX% swaps. and close one our really are We away was move go a to LIBOR-based is portfolio like of the or going either LIBOR time. reasons, of a obviously XX% about to some we number OIS opportunity last is

same So, to everybody versus quarter. we terms receive the indexes In LIBOR. a actually have the level the out both is But of average this going in was environment, face two They OIS rate overnight, current it were in issue. think overnight were desire and rate good rate same average those time to to actually also, came third the the at XXX. LIBOR our at

LIBOR. funding LIBOR also that is will consideration relatively have banks, of limit number versus really we as a materially actually a to track better pay its But that point about lower final of can lot number we influence OIS the I of obviously factors rate, then basis repo small or think time mentioned, that And LIBOR which banks. over get A a difference. small was XX

time, over a an rates FED gave big or versus in is advantage in rate a easing track constant. to see three We the holding the going economic environment OIS think Funds’ month we FED current likely So, better. repo environment. us the is It fund either when LIBOR

think that differential small. we those will relatively So spread be between indexes two

Gary Kain

good the the it very really really answer repo those a tied add And enter are be would at at be liquid. like essentially receipts just times swaps having to right – them now, you I perfect overnight frank levels. which what – SOFR rate. There for repo when market to is, us, can perfectly would be into the would aren’t But,

as these that. clear, wasn’t the be over when September, should this swaps funding was it in a reaction were look to you honestly, and to – the trade take overreaction want not or step before issues a at to done look trades I really But an back that for something what more. is start you But increase you and the to us time

that, But interest step just repo hedge government business. you and those I we rate would a what our and We the should back, the repo mortgages say way be, best or and our We repo, about risk. how you GC have business to is take fund mortgages. think when via we mortgage buy

So to cleaner a into receive pay fixed much, is trade back a – equation. introducing than and the is on swap that really rate LIBOR much, much repo perfect a

a improve, way the starting we just confident be are to So, and of the – there. I OIS there. that’s but pretty is have We hopefully long liquidity XX% to the think, we’ll practical about run, market’s get it’s step

Douglas Harter

Got it.

so reduce I of make of being Just swings volatility else the these moves to understand, quarter-to-quarter? sure all your fund equal – should cost the of

Gary Kain

rates. Yes, a and is couple is our cost basis – the But importantly, think times, important enter this I Peter a volatility risk and funds. XX stress should able of to mentioned were lower able management benefit and these pay of you are into to the it reduce we but point XX, in it at

So, something lot we risk. it’s of reduce to have not a money pay to

as These were attractive well.

combination being a I a benefit the unique business think securities, the of our gives from attributes to risk it’s to which and of funding So, it better government is lower And ability it’s to tied is the because in us our these a of rates. swaps position. get use

Douglas Harter

you. Great. Thank

Operator

comes George Thank from the next you. KBW. with And question Bose

Bose George

morning. Hey guys. Good

are Slide noted it drop at just net end contracted positioning the X, just into negative actually on tie little actually the through of like on that also your incremental terms the as did well. quarter are where the of stuff stable. and In they that pools guess, Can trying pretty especially the TBAs I I of you some versus to that understand spreads, guys was the looks that The – what just meaningfully? And and spec then, walk TBAs? a you on returns, you better, fairly

Chris Kuehl

it’s Hey, for Bose, question. Thanks the Chris.

are contextually, to the around around XXX just spread basis So, XXX X.XX to swaps points. yields with

leveraged So pool a is but Specs ups, times just convexity contextually of use same and spot round above to there range types a before numbers that are XX% ROE pay gross area. what XX in the generates wide just cost.

lower and position, sold continued that the TBA that added since we coupon – amount it down been higher versus versus to to third of as we come do respect coupon newer the pools we’ve more selling fair it’s production, quarter higher coupon TBAs. the TBAs quarter pools of end, coupon lower during adding direction a trade, With but

up billion the it’s are TBA $X difficult And just the positions the a of implied of to so, back it’s of pool currently, today. how that believe as project the prepayment shy position to ups function I size environments, TBA financing of rates, trading. pay But

position, how weaker, us position. carry we we pretty to with often manage rolls flexibility of when lot TBA gives pool generic a respect a the But because trading are it sizable particularly

we monetize for roll are or the quickly repo. for carry So, selling versus delivering the repo, by when can really example, out versus rolls can that vice special rolls trading versa pools pools trading versus we and weaker,

flexibility So, there a position. in lower of up lot carrying pool pay a is position, a

in of words, So, that Hopefully question. there other value amount carrying your in option answer pools. is helps up fair a lower pay

Bose George

sort pools. so to in It does. holding in trying of just, the difference versus understand is Again rolling is, holding there

Just in given in coupons? the the differences different returns

Gary Kain

other What just Gary. and to if so position is have X% pool $X.X our let’s we this want TBA just have like then, right. add, specific these And where look of positions. a at position we coupon say, Well, short billion, get you I’d

of Let’s quality separate these Essentially, positions. the very a pools, higher pay maybe ups. low many pay And where, or the specified up kind of have tick they other like have out these that. pool something

pay essentially, at if roll and dollar is to the roll into advantageous TBAs. have going that Yes, the XX raise if versus going you trading. more Because But to of you some to our at for CPR is ups. is don’t XX. quarter, deliver the are be that keep it’s the actually to But, XX pay to that want bigger pool going pricing pool CPR, that are CPR going pay it’s think There to it’s average okay. where you

a can up lot point, is you make XX roll below implied off of if to what’s is up, obviously Chris’ pay no period you for better speaking, optionality, CPR a you if for is pool are of going it. the to get a a it prepay X that’s if sell of short but so, decent you there that pay it generally sometimes CPR, kind pricing, there trade-off or keeping But in And than time. can the

sort took if would And worst why out from $X.X CPR we dropped for we of our that our our said, billion that to so, XX. that CPR have interesting in aggregate coupon, it’s coupon XX in

that’s on up So, probably there it. way it is economics as as below incremental speed some at is long an about to think the best then, the what’s to the pool pay roll, with negligible in keeping least implied

Chris Kuehl

these increasing, may reiterate flatten very have just to low the the roll and risk, we one on And carry pools or Gary’s it’s is position. on. the on the thing converge the some just, is I’d carry point, at implied if speeds either add carry roll, pools improving to due point on a with position to out what’s But positive the point, to or

Bose George

a Thanks Great. okay. Yes, lot.

Gary Kain

you, No problem. Thank Bose.

Operator

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

Rick Shane

Hey for my taking Thanks guys. morning. questions this

I we three move is think we’ve are you think there wider normalize that into that you is Two, asset as attractive sort heard to you from XXXX. factors expect One funding that guys. spreads. of that with pricing

what hedge high high three, at then, – we the as historically. it’s of end when ratio at seen And the look it’s we’ve as

leverage? you into through that I an curious that given XXXX. that guys you is, you am that All do leverage additional as driving of where opportunity there the to for see balance move suggests is grow sheet

Gary Kain

operating on good that leverage would to times in of is Look, and leverage to essentially, think I question there times of around being current the that’s is last call we I the kind the said operate. we range X.X see XX.X expect a where what a environment

we totally Now that outside and be may of we are at periods some with look, that. range comfortable

in kind definitely going mean, That’s are to I like probably at on positive. your kind the And they good. so a absolute both interest return And feel look prospects of we rate very manageable. valuation and of even feels said of look forward. the mortgages end Mortgages, more wide We point, the earlier, when in I space. environments space range relative the as

can of listen of rate stay question seems is, low to you I Powell the up shock he I risk is it they realistically. in inch they extremely get inflation want too future and mean, get yesterday, a even don’t where anyone it rate the It’s hikes the big really up to was – discounting get. when kind bit foreseeable little stay absolutely a and think hot and where not thinking

So, think way to I a have rest you one rates.

an situation easier that’s So, generally. to manage

of So, argue of end, kind end short higher in feel seen, those run, perspectives, and might range. better leverage could given entry volatility from for points being kind there I say, the the of the very would at year you for we’ve the watch we we’ll it. like be

becoming more But in like the feel is big favorable. But picture, up. we we set we’ve are operating largely environment the range that do that

Rick Shane

helpful. consistent are seeing terms hedge what Okay. it’s of with too. portfolio in think I And actually, That’s we

look kind what When the we you at during did of barbell quarter, things. you guys

of to low position. rate, expectation insurance swaps, the swaption And volatile shorter added sort took but buying and but environment? low volatility, of consistent significantly You with that cheap the low basically is

Gary Kain

it and look, I practical. I is mean, have we it’s Yes, think, interesting. to be

low. risk portfolio, think feel shock. As this the the be to when the the downrate upright a the for Chris portfolio well about said, is able money in carry of to we to to there has handle be environment I just was make positioned like a I in – we’ve But – described we extremely steps big that shock practical highlighted very is have look,

do we mortgages. longer have But duration

lower We and have coupons we have specs.

those extension holdings. that risk in We have to fact be there about practical is the

buy shock, practical to some along. to of way protection your are so, point, of the we sort a the But And portfolio. comes the about if temporary composition optional best shock is the that insurance being

this you But we critical ignore can’t all protection that attributes I – optional we’ve and for other lends the the that portfolio. have talked it’s having it, composition It’s reasons, about of to protection. the itself think

Rick Shane

Thank so for my this time apologize morning. questions. I much great. taking for you taking Okay, all

Gary Kain

Thanks. problem. No

Operator

Securities. JMP the question And next Trevor with Cranston comes from

Trevor Cranston

of to as increased. thanks. end in he viewed he At Bit of of rate Rick’s extension And of a sort kind downside. one-sided Hey, market Peter’s commented he then, MBS risk listening risk questioning. that that the remarks, indicated the comments, follow-up it to to the Gary’s

So, how I within bit thinking about are you the little composition. a guys portfolio was elaborate asset and constructing you the if wondering could risk how you extension are on

if bit elaborate on Thanks. Just a that little could. you

Gary Kain

right. Sure, to I’ll question, In what think what’s you the absolutely important, I I think start. was really are I again, response last –

think our Chairman and Inflation, inflation expectations, perspective up characterized it’s Fed inflation because raises Powell go of the rates, what You with consistent on okay. and said and interest I is which yesterday. rates again, rates

an I on what shock you low their of a shared think at. obviously are lot the view from think people. is up, that’s noticeably. is as We that very means which I shock that of don’t looking that that of uprate probability an I see by of the backed mean, think lows We depending relatively the and a outlier, rates risk risk uprate and low. curve part have

catch uprate be Peter’s market, practical given if that which that to we to composition weigh could unprepared it the seems against a that was shock fact unlikely. – last, composition market to portfolio that it that of earlier will comment, didn’t means participants the our it again, have there But and we the if an have the even little of

driver. the So, that’s really

our some what opinion changed rates. being fact are notice, increase our just risk. against you’ll extension that that, have in. of can the we and And But We on hedge in options. some we cognizant the factor have composition it the actions that protect has mean, our portfolio size part on portfolio, I to of to requires of an

Trevor Cranston

it. Got

questions are on couple where cut? you how question repo you then, the year after would guys, comment the on guys the on would approaching are first question a of be, could you repo Fed of could the sort towards if kind then you end, And second as seeing comment be, move you if today pricing Okay. book, And that?

well rate are the advance across December of of get book to how potential for And more much given of end year funded sort volatility? sort you the in expecting of

Peter Federico

the Good sort our And It’s that right that. to fourth question. is we headway. a that’s in one really remarks said reasons this thought now. quarter answer question, Peter. couple difficult why the first still a maybe of and Trevor, funding take Sure, the to in prepared of part Happy we places of

It’s is the rates cut where of yesterday the if right hard relative just repricing, reflected to so in in happening to now, market the FED been market. fully there terms the because much exactly is repo will related gauge hasn’t you that’s

the All has fully FED market. reflected liquidity been in of the

So, in I term it’s taking rates. way, repo said other

around reasons would come It’s to come expectations markets’ like down. term issue time pricing as of the a of the improving in we the rates one them are because wasn’t much down taking market is we they as why those Fed. whole as for September the Directionally, as all the to market the had properly

next come couple the Fed has language down over be and is it adding liquidity. hold sort of that the The given for while, may term Now that changed indication on its think more weeks. will eased again I rates a Fed yesterday the and

general, – as sort months of give I three jut our using you you a will, benchmark, a So, repo your guide. sort if think of in that to

points. I think settle out that the at over basis minus going XX two to that’s to LIBOR flat or quarter next

So I some there there. be think improvement that real will

reasonable longer I is flat run, less to LIBOR think over ten the a place.

at to the have relative overnight it rate. think to You if you look

average something XX XX average I points will think book repo to like our that. above basis

expect December term year November has a I lot question into But lot position market again, this a sort end. happen year end, of between to about – of a open end. to will respect typical With the your and carry up in and now to year

down. high still but X% too the which it’s is think now, ultimately, or trading low to going in high, be Right I twos yearend to come seems

We have month today. end one best to I month expect our be ends X%. at around that of

optimistic. So, cautious. be to there we reason is are But

for are I think constraints. because to way little another the balance it’s sheet the the that the because large Fed those that’s from will end system, sheet liquidity through difficult make balance is constraints the all spike Fed that and the way of facing show its banks, year there is providing is issue

the of So, in over six back around that’s why trillion are so wants add is of money $X reserves to there months much the that Fed excess I think the liquidity so we system. one ample and reasons the next to

hope just while So, But, that’s where going. I to a us there. we get are It’s responsive. going little that’s take to

Trevor Cranston

great. color. was that you. Yes, that appreciate Thank I

Operator

Matthew Thank from comes you. Nomura. question last And the Howlett with

Matthew Howlett

moving, answered. I questions of Gary, have you, mortgage-backed of GSEs it my ask Most But your thoughts been Thanks. holders conservatorship? a were largest The just wanted securities. to quickly, quite of as one there the agency

What GC it see are of business. your sort higher of one thoughts, how them. We your does weren’t impact and nominations. You

entities? could you those you Just happening two comment maybe what see with on

Gary Kain

a would planned we big we is the was intent seen, the I build released lot have more capital. the a from and for I GSE the What I Sure. definitely to that’s late. bottom-line discussion yes, picture, is the while finally GSEs think got reform gotten administration definitely, there of topic that say, mean, is

starting I this. long talk to beginning to And is about say, yes, that. that would they motion. it. a for is talking But runway is, FHFA about And there in are it get

Importantly, the them the the a government to for When a require to really has acknowledged, put anything a is number guarantee maintain government legislative don’t I fundamental going going change to together, that has with GSEs the need solution. of all for you that’s years. think administration acknowledged

There it’s put talk, to is from There off. a conservatorship that’s but would And like as them will be going I something years. terms that’s ways short-term in of five nothing perspective. exiting that change

other that logical And own. think or little bit. one administrate your I I yes, And occur that’s changes of could can on is GSE impact to question a footprint sort that incremental maybe more FHFA or how relevant their will shrink us. think perspective the it’s see and does little a likely that the from Now, occur the the

is thing kind it to should we I agency of we’d would it alternatively, years, little help otherwise perspective, more our trade an happy AGNC’s to both into think, attractively in essence bit. over in And were one be a where will if get supply the should I net very it environment little credit a MBS than tighter was will, say response. think and where increase constraints from priced, risk - credit next, let’s the it few

credit a levered we’d more to private the And take GSEs But And from on a talked insufficient. are well markets. space in about Currently, relatively the advantage many to normal that. calls, fully time, investor, so environment, love we view credit we as levered in to valued ROEs move as over the are see we’ve world product positioned of a very or as the tight. mortgage

the driver short business in lot I to a being there run, discussion. bite there don’t than a of So, significant I is our of think decisions. business the it more bark is kind But GSE or see

Matthew Howlett

And been Great. – are and the the fact risk you has out as I to be widening get out due spread to and try clear, could conservatorship agency the don’t of possibility PSPA you don’t of talk just than there any on some is then, spreads any there to move widening trying to mean, think or – move government the the

Gary Kain

reiterating the the really for they’ve if what fully kind are Calabria’s to is recently securities with a and put like guarantee trade there four you months couple to backed and government on to the continue with But committee implied, if they market we ago remarks. committees, concerned at And government. or need for – was the five initially the I or a sit out as look concern of SIFMA was there trade which So, association. bond by

fears think have receded. those I

was So, there the been summer you But of at concern, along out probably lines. fact that think point point, the slashed. absolutely are I at beginning right have those the this some concerns those to

Matthew Howlett

Gary. Great. Thanks,

Operator

Thank you.

any and completed answer Kain like I’d session. the Gary over have for closing back question turn We to to the call remarks.

Gary Kain

everyone next you. to participation we call thank on Well, quarter. forward their QX thanks. and to you talking our Thank for I look would like to

Operator

you. Thank

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