AGNC Investment (AGNC) 1 Feb 222021 Q4 Earnings call transcript

Company Profile

Participants

Katie Wisecarver	Investor Relations
Peter Federico	Director, President and Chief Executive Officer
Bernie Bell	Executive Vice President and Chief Financial Officer
Chris Kuehl	Executive Vice President and Chief Investment Officer
Aaron Pas	Senior Vice President, Non-Agency Portfolio Management
Sean Reid	Executive Vice President, Strategy and Corporate Development
Rick Shane	JPMorgan
Douglas Harter	Credit Suisse
Bose George	KBW
Kevin Barker	Piper Sandler
Kenneth Lee	RBC Capital Markets
Eric Hagen	BTIG
Trevor Cranston	JMP Securities
Mark DeVries	Barclays

Call transcript

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Operator

Good day and welcome to the AGNC Investment Corp. Fourth Quarter 2021 Shareholder Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Wisecarver in Investor Relations. Please go ahead.

Katie Wisecarver

AGNC fourth joining call. XXXX for you Investment quarter Corp.’s earnings Thank

the Strategy Kuehl, to Development. President Chief Management; Vice Bernie results that, Vice the Copies in Vice protection Safe SEC’s Reform law. those Executive this Peter forward-looking statements results those call extent unless section are we due factors Participants the to review and statements historical of and subject Private such conference contained many of available contains Chief filed to Bell, Securities Chris Portfolio sec.gov. Commission. of Harbor I’d the Senior fact, the and at All Officer; included could by over to corresponding presentation made Vice any of turn differ Aaron XXXX. With Securities of disclaim notice. Non-Agency to that Reid, to to are Officer; update We to without our in Safe of and in could change presentation cause Before be within and President and like subject by Actual the Federico. of Executive outcomes statements forward-looking are and This constitute the forward-looking begin, the Director, Corporate control recitations are to with only on provided Peter Act. included impact All Risk they Executive not and the I’ll Harbor intended materially Chief Factors Executive Exchange the from forecast website factors Certain are statements President Investment Pas, statement. President of the slide Litigation statements differ obligation that as presentation are of call forward-looking required include Act the meaning actual periodic Federico, this forward-looking AGNC’s call reports date Financial materially AGNC. of statements the from beyond Sean the and Officer; the on Reform President

Peter Federico

Agency materially amid The uptick monetary an short-term volatility interest this spread Most meaningfully rates significantly caused and to nearing with inflation increasing you, occurred Thank flatten led the Katie uncertainty. the to MBS November pace With asset in relatively quarter. risk that backdrop, Fed significant policy our series Fed employment, monetary the Fed runoff. accelerated the long-run in increases fourth target the short-term labor and well policy. rates tapering, the by and to greater the shift its to Investor fourth shift of in discussed rate rates term This on above signaled as sentiment of underperformed everyone negative curve remaining quarter balance running and a rates market spreads call rapid in quarter longer interest widened. benchmark in economic welcome an unchanged. Against led full the more of rate the of turned negative as aggressive higher yield abrupt signaled widening and short-term sheet the for return today. to

year, MBS decline a wider economic and in to of X.X% book dividend due however, Our for the our yield X.X% return the was Agency annual and represents value combination positive spreads.

and with will going and lower defensive to protection. hedge leverage forward. anticipated. Accordingly, and We continue The in timing more by quantitative of from MBS quantitative operate pivots challenging starting than possibility a will reduction sheet The likely and Fed balance the zero sooner communicated the tightening to the some near will reduction to this Fed previously driver rates continue of amount of Agency and as balance be position, important significant we more rapidly sheet conditions XXXX. higher market face also easing rates an short-term characterized spreads

We our an XXXX, in spreads trend In a value. wider will be basis points. led continued decline This spreads also additional opportunistic to XX to decisions. MBS current and book widening coupon investment patient our in in continue January with

was As in about Friday. last our January value a X% down through book result,

Importantly, the run. despite as but the be leverage portfolio, an investments longer The at our book move as over benefit at the investment investor of on our our capacity a on is expected net spread significant benefit This today in time. gives we half is run, to take gap of business us business advantage the duration in attractive our January, business combined value and X.Xx year. flexibility positioning our opportunities the the and Today, return on expected dollar funding. with period favorable widening the TBA arise. return enters is leverage present MBS the to in new our can two add including value spreads the XX-year benefits If the and expected short in well-positioned is over range of thought impact adversely MBS XX% existing they mortgage lower Agency roll the Wider incremental coupon production associated before XX% our we that a of return ways. as have, with with

amortization portfolio, respect spreads the can expense. with flows existing wider First, improve through specified prepayment and coupon on mortgage speeds our reduced slower pools higher to premium

respect on obviously to future investments. return spreads improved the new with our Second, wider portfolio,

on point in basis improves the For by spreads ROE Xx, investments X.XX%. example, new a widening levered XX

for well-positioned short for summarize, over the as the to run wider franchise lead the and they stronger good to are are long run, current we greater environment. And while our in value. business earnings spreads So challenging

a the wide a long-term Looking at across our market of of multiyear AGNC’s model business of conditions. period, over and range performance a value durability illustrates the investor being

years, total generated X a of Over XX%. economic AGNC the return last

per we market Fed to these Fed’s over time I now year, policy. navigate unprecedented dislocations uncertainty that while volatility to With broad Bernie as $X now due The of the close growth and experiencing period, monetary financial to the to pandemic. results. over had shareholders trillion over to balance that and Yet discuss will call paid in During to turn an the tightens the that, sheet of despite decline XX% small dividend challenges, a our financial average period, relatively book value. AGNC annual

Bernie Bell

Thank AGNC loss per of Economic in value reducing return the share equity fourth tangible $X.XX economic negative the per a you, for net to had positive dividends the comprehensive our Peter. was return total year X.X% common comprised quarter, common $X.XX for $X.XX tangible on for and decline share. in quarter. a share of book X.X%, per

to at-risk our as value. book our asset Our decline tangible the quarter X.Xx as tangible equity offset reduction was net end of during in in modestly the by increased our year leverage the base

our normal levels. Importantly, our leverage is still meaningfully below operating

at end stabilize. totaled billion, positions held assets At well take of which MBS increase our subsidiary. Agency leverage we and conditions once credit assets this us excludes $X.X XX% at unencumbered tangible cash believe quarter unencumbered to equity, advantage Our broker-dealer market attractive and to of investment captive our opportunities

a roll dollar Our quarter. net for income asset very and benefit from favorable roll income roll strong despite to dollar our advantageous continued funding spread at hedge spread smaller and stable net fourth the dollar $X.XX cost, share and remained base, environment, opportunities. Thus per

from declined remained the Our third of net for modestly the our quarter, above X.XX% to the for year spread average interest but X.XX%. X.XX% for quarter

largely while prior CPR quarter. to for published of CPR year unchanged new was for our forecasted quarter this averaging XX.X% January held assets XX, XX.X% low to compared into to lower, trend as print the continued to And most continue to quarter by trend evidenced the poised at actual in average our which for a December XX.X%. appears the declined XX-month recent as life Our as CPR of end, XX.X%

common commitment our shareholder-friendly discuss will or X% demonstrating turn of accretive the accretive activities, over the to Chris repurchases completed Lastly, agency we fourth total outstanding. during now call capital repurchases of to shares year for $XXX the stock quarter, increasing $XX mortgage common to market. to the million markets I million

Chris Kuehl

Thanks, Bernie.

shift described, As Peter have X in markets last months the considerably Fed guidance. over re-priced the policy the following

quarter, flattened rates the with dramatically XX of a curve XX/XX. During were rates the fourth changed while X-year basis yield points, as XX-year little treasury increasing

MBS in interest surrounding Fed rate policy, underperformed uncertainty heightened Agency hedges Given QX.

midway spreads little influenced grade observed MBS tightest term the heavily ended investment was product XX points benefit. performance tightest spreads hedge with longer wider approximately the coupon current ended quarter curve XXXX. XX-year basis the during the However, through last on observed than contrast, year structured other the valuations hedges and In second levels positioning year. CDX the providing near year rated highly of by

as of the is increased balance it With QE end more uncertainty pace for logical re-priced to of January a aggressive market the and have approaching to to surrounding spreads the sheet balance underperformance the normalization. in start sheet an structure intensified MBS normalization, underperformed. This possibility Agency of

QEX. of Fed Given that the in points basis are its XXXX balance following end sheet spreads widening has XX occurred of observed levels average the to-date, within reducing was when the

fundamentals As MBS. asset attractive, remain MBS The risk absolute in given liquid, a and to the and deep relative result, is markets current prepayment valuations on Funding for the supportive of an both higher value are Agency rates cross-sector relative lower markets are other and Agency was basis interest move also strong. classes.

around eligible challenges headwinds have will described, for the the supply taking for and and remained expectations MBS mortgages of and originations XXXX. technical and we likely given we leverage defensively Peter as The front, the However, supply the on higher. positioned be demand in towards of Fed’s heavy uncertainty in from sheet relatively GSE the normalization combination new path organic stem balance patient

once dynamics should the excellent investment fully create reflects to these for want these However, market I environment AGNC stress factors. an that

specialness, end, of dollar points As the benefit Fed from $X XX-year continues prior the MBS trend remained lower TBA year basis totaled $XX down through production a quarter however, rolls to trading the coupon as quarter. to during the portfolio and provide XX reduce holdings. roll TBA its approximately investment will substantial financing our quarter with course begins repo. the billion, of billion strong over likely

totaled the $X.X $XX.X quarter at billion portfolio hedge billion from end, previous up Our quarter.

relative liabilities to or funding ratio hedges to of notional our hedge our XXX%. the Our balance increased

environment, Given well associated with hedge by is uncertainty and maturity. continue volatility the a diversified favor to current hedge we that and type by portfolio the

hedge with We discuss will Aaron short-term ratio over to non-agency repricing high doing markets. minimizes the risk. turn operate debt to as I the now call so continue also to a will

Aaron Pas

I our quickly update provide positioning. current quarter will brief recap Thanks, Chris. on the and a

the I on in mentioned, well due to the performed to changing and credit policy will As changes. increased front future as minute, opportunities the landscape find overall Chris rapidly Fed describe said able complex Having quite a in the quarter, we non-agency in just that, with generally quarter. considering some to were the fourth volatility in respect the spreads

the label rated commercial September RMBS credit fourth XXXX. $X.X as and assets. holdings, billion primarily by the XX, our portfolio of in $X.X additions to of highly increased This billion duration Turning private spread driven from modestly non-agency quarter was shorter increase to

Price spread private backed spreads in at by we Within an We our the investor agency AAA the security in attractive November market, entry quarter. were residential levels where securities position to point label equivalent further. as meaningfully on the concessions AAA and agency-eligible this loans significant traded. increased viewed widened

front, certain new Additionally, investments. incremental on this made short spread widening the issue advantage widened duration heavy made CMBS took supply. We for as assets and of room investors

on the end duration With good QE a were profiles these fit. of shorter the horizon, spread

increased with XX%. the portfolio our clarity the around roughly Finally, size outlook, in of supply we decreased CRT QX by

we price segments positioning credit fundamentals in impacts posted to That and will back our over gains estate forward, see perform Peter. and certain the strong well. cautiously a us risk said continues backing are near look residential tailwinds. call inflationary we As Housing potential the will to poised holdings. that, continue benefit both leave more bit of XXXX term. Commercial commercial from to With the supporting I real commercial turn to in credit of the solid Fed policy sector assets

Peter Federico

call will the that, open with Thank And you, your we up Aaron. questions. now to

Operator

comes the Instructions] [Operator with go from first Please question Shane JPMorgan. And today ahead. Rick

Rick Shane

guys thanks my morning, questions. taking for Good and

Peter Federico

Good morning, Rick.

Rick Shane

and provided Is the update we seen. risk of in the or at widening driving you’d value had book If there should something an basis short-term? that the And value put that that you in the of basis done that XX on move you the basis have you look points context January spread through Peter, expectations, we sensitivity also book have to something outperformed mitigate the what’s that expect? to divergence? continue versus is your chart, has rate sensitivity

Peter Federico

question, XX coupon somewhere outperformed basis current X.X%. points XX January what about on mentioned lower had XX me generally were or the memory by the question. our I the good for And portfolio, widened X.X%, the points of would bit points. to portfolio. at that in basis you a basis XX if bit in the point it’s about at neighborhood of coupons all which looked the still average, X outperformance XX about the a also and your average, basis. still little on this widened XX is wider spreads really, you correctly, basis my probably relative that. composition And little higher of but on of worth underperformed relative you a our key is They to in a to widening is the But not spread sensitivity of if of your thank Yes, environment It’s points coupons one drivers look performance table, basis points only serves of Yes, is Rick. if portfolio, duration

of duration little like our in having we the why gives less a reasons portfolio lower sensitivity. spread coupon One us it higher as a bit

quarter, important last the in we XX unchanged. basis rates is X-year two last drivers. and And points rates about really, in by remain and relatively are increase other had – position. hedge composition the So this really hedge those XX-year That’s

Chris end curve in prepared perspective, really a remarks, his hedge overweight hedges. have from the the if would you no had of benefit those out in you As pointed from longer gotten

value combination the overall the I our coupons on higher the table overall an at that part of give composition And hope that’s spreads, our I have it’s – it’s having a say, on impact given of outperformed that spread mix average, looking less would right, book hedge So our But duration. going performance. having you. would tell then spread assets portfolio, that us helps. to what you’re a just

Rick Shane

were about then question, or one during the the value accretion, accretion you about was quarter When about several repurchases helpful. we about and context And buyback mentioned in when the book policy tangible it you behavior? think you right you talked And drives other of of fourth now? that And specifically those that metrics you earnings. we times think accretive. Very can think reference curious the repurchase Great. value, the book referencing I’m your GAAP one when are which the

Peter Federico

value end the a our think at be we can of our that shareholders. for the of management source day, Well, activities capital real

that it we relative in current real the accretive making measure an our at But sure market time stock to day to That’s and you at back perspective, buying we’re So In to accretive when stock we daily were looking book as is conditions, a that’s basis, issue that those at we meaningful the primary the see it’s shares the is stock relative accretive from that always fourth And when looking the we tangible shareholders book our tangible accretive and our value is believe example. value value clearly, whether our look looking quarter, it a accretive. that discount buy I’ll stock price to give we is from an a or are accretion we’re be can book at current on activities market back perspective. from that earnings every our at price. our book to it capital see also And and an value. perspective.

Rick Shane

on mentioning, that a worth basis. you’re again, And real-time doing

what or that what So at your updates, is marks decision basis. the a the value and the real-time you’re is book based looking on NAV making on

Peter Federico

is That correct.

Rick Shane

great. drop back the helpful, and Very guys. Okay, will queue thank I into you,

Peter Federico

Rick. Alright. Thank you,

Operator

with The next Douglas ahead. Harter Credit question from go Suisse. comes Please

Peter Federico

morning, Doug. Good

Douglas Harter

Thank morning. you. Good

the now. your of would of Just continuing conditions of kind looking bit processes? about a to talked Is a to on defensive be start for to kind time? more that it it level? more what thought are positioning the offense? right of are little What keep spread kind Is You you go

Peter Federico

that question. you’re Sure. right. for Thank And you

defensively. was, quarter, think, be I the last at though even of in around really was currently that I prepared end mentioned leverage my positioned We still X.X our remarks, X.X. fairly it continue to

are supply to gives really So mortgage continue number is X just they and of here, but that pretty that we’re the to go outlook, outlook the believe in maybe wider, point given where Fed possible. from spreads a a obviously, which can operating us or from the leverage in put significantly operated we the the to to a is past going it not basis the face somewhere XX meaningfully in we on biased still below we the wider flexibility. with lot market, range have But bias wider, our go perspective, certainty probably

agency from fundamental a not the some So really and to Fed. clarity now. to we’re right MBS actually see stability trying market messages just see we good is look And want some the that market. market, the Agency of overall if the want the We footing you at back you perspective from is that to communicate in one step

you the last liquidity really as funding quite good, If I look of returns, good, were, example, is from the bit for a where the May improved absolute from is have year. just it they at fundamentals, mentioned,

X% So of continues point. to and Fed XX% of about significant. effect your own value that X% ROEs what of look is improved from The market. or the have overall They The relative really really own Agency banks stock strong. MBS

Fed. out think get in we it’s But at mortgages think add going very We we’re rates far I We this want I attractive to the likely that to And overhang of underway. this So the have XXXX get really that headwind and is Those are tradable forces that great. sort to supply we investors that have positive away, where see. prepayments to through technical not clarity of a one want opportunity starting clarity, we when a environment. supply to want run macroeconomic over understand is to all speaking, levels. short is that improve. the we from endure sort not and are are generally real settle The

it to through perspective we meetings. get we next the several are need So that looking is, from at

get clarity We’re lot the from a of to Fed. going

attractive an basis. look little a we both need be probably of But widen think, spreads that to we more and is our more will leverage guess mortgage we get to absolute get even they’ll that I that sort on And point. once some, to Our clarity, relative up. take time,

So follow and I’ll there on. let you pause

Douglas Harter

helpful, That’s Peter. No. incredibly

insights appreciate there. I So the

Peter Federico

Sure. Thank you.

Operator

Please The with KBW. next ahead. Bose from George go question comes

Bose George

Hey, everyone, good morning.

Peter Federico

Good morning.

Bose George

Peter, can Actually, elaborate just you more. a little

we a saw noted points You I what more could XXXX. I spread earlier XX think, you are, little mean from we mentioned in spreads basis widening. see guys

could what yes, your ‘XX your Could just we see levels, worse So or thoughts see are what’s expectations? there? we

Peter Federico

Sure.

Chris, I’ll historical to over But more a then X months. XX the with start I who certainly it important It’s talk about here. mentioned, spreads widened widen at look have it off perspective. to sort me much a bit and of spreads from that, Let pass from XX also little like basis last will points how could to

you collectively year, mentioned If sort were neighborhood from points, May probably And look just of say of the XX the of basis already, of XX to in I’d as they importantly, basis beginning at basis average, widening. XX last or close somewhere I XX where are points on at of they points.

widening. material historical put for in it points XX, seen if XX about basis back X, it can some would mortgages say ranges. talk we’ve I But Chris XX, were widen So too think that?

Chris Kuehl

Yes. No.

As its levels sheet. last I basis was XXXX about running Peter of balance off average when within the mentioned, from we’re XX mean, points Fed

should or cumulative. XX on very in deep, liquid, time. versus shortable fair had sectors. in January. have spreads easily But initial a be basis against the mind the sharp think guidance set It’s balance XXX% where is relative It given sectors in impacts It’s market is that was to QX X adjustment from I mortgage advance widening mean, impact benefited going shift the on basis sheet thing market. given the a amount its to policy abrupt X will is hedges in a for point other be support day months QE. be even a matter. of underperformance, the shouldn’t in that agency from centered in take other The enjoy they how also can that I logical keep we

points. well That’s normalization. structure it But relative supported. to on widen really a on probably XX of balance so couldn’t to they X mortgages be And we that basis sheet say ultimate reasonably depends basis, the not another think will

of a in Fed We’re policy, economic with period high respect the to outlook. uncertainty

our bit a And at provide elevated it rates possibly against valuations higher expect fair so overshoot do leverage us will of to and are environment. settling we volatility. low will times, to in risk, value the given increase a if starting attractive position. opportunity spread very backdrop earnings be good prepayment that Especially And a for

Bose George

I just lot great. makes the the you I to how trend ask Okay, to in about Yes, half well, with specialness of then expect Fed? about a back just that to the And sense, thanks. ask year wanted – as of wanted

Peter Federico

Yes. Go ahead, Chris.

Chris Kuehl

the for which other float certainly towards on would the that’s the XXs repo and going time base a back gradually depend Where rates good unknown. caps to are this XX trends which fine. than case deteriorate points. set So trending XX would points average basis around it the persist of faster. basis balance is near amount was levels, on And last a stay reasonable I off specialness, Peter is levels as long the XX very mentioned, lot the term even Fed year. quickly how sub-XXX roll If year, roll its a is a float Longer the basis with set points specialness going low. compelling and to But roll high that weaken of be the are given of level specialness will this up and long the levels risk prepayment sheet. caps on specialness is is say through set caps to the float, clean relative hand, the Fed If levels, at are with reducing deal at the higher, and rates current rally end The time. are should are the longer deteriorates. to on could determine tied comes speed will lot float the quality of of factors rates banks, long-end

lot of that different hopefully, on project. you to difficult it’s some so gives factors, it a But but guidance. depends And

Bose George

helpful. a very Thanks lot, guys. that’s Yes,

Peter Federico

Thank you. Sure.

Operator

Sandler. next Please Barker Piper The ahead. with Kevin from go comes question

Kevin Barker

Thank there. is do you. just The obviously market more widening you own your the aggressive I do around appreciate opportunity Fed I than feel potential think Fed like personal we’ve inflationary the all given the there out is there you little little And a to spread feel Fed expected. and feel from from like out comments maybe I mean was a too the perspective, where going playing redeploy aggressive move an is this perspective? it opportunity creates seen capital? through getting opportunity what up, that’s catch you to as like an and emerge year, the we probably a much bigger the

Peter Federico

for you obviously not thank or Kevin. in is yes, or whether the can’t the I a question, current it’s Well, And behind Fed behind. not the challenging question say environment.

I think an such in its monetary policy stance. they made was that why now, abrupt which in right – shift behind the are Fed believes they their

last for I Fed very of it to this think the what was I the policy you funds into meeting through what separate think though at clear tool sort did make have rate. Fed primary the tightening that are pass. Fed’s And is monetary actions their two conditions

March, So going rates begin they on to front, I think very going are steadily. raising I do are that to in that think they and

members were there comments of from about just fact, yesterday sort some steady Fed In increases.

point. of of at rate or expectations four having increases sort this does in five not out So XXXX, seem

from ratio front, be I going why X% they I fairly to the But aggressive the think have be what range. are the the of in hedge Fed short-term reasons more environment. the to don’t is one on is which high said front. think so be having changed to aggressive is a X.X% much in important I rate the current the it terminal on would has that themselves believe Fed going rate that

much to to predict difficult balance this is it’s the point at the going On Fed what I sheet, more think do.

they I In of that is times which And the orderly last But comfortable the Chairman needs if he fact, Fed reasonably were I that he predictable at And work. words he still meeting sort at that, Fed to caps couple meetings the some several the and sheet ultimately, take $X a down what he couple does runoff how do think in the And the himself Fed to set in very – did financial said, of like how levels. think the run to used operate, wants discuss. opportunity they allow give said described comfort the then maintain markets. in the the the then background. of something communicate, of like markets, that the stable. destabilizing market which focused trillion years, happen prices balance would over I is sort making if that, trillion the to And runoff without I get on they’ll to background, program durably the he will think keep relatively the $X sure their this next them orderly

balance sheet they monetary of lean to way short-term know how So rates. don’t the balance exactly sort are perspective going I say themselves more think be they exactly from impact policy will with works a little the they a that bit know cautious policy, the what on They whereas really of sheet monetary tool.

that period to that of you lead, to back predictable X be think maybe get fine focus which going say, in a us. off are ultimately, we environment to an running I they durable would could as And the try end MBS. pretty think at actually on of balance I months sheet So way, in the attractive Agency and have that for opportunity and where a

there. So I’ll pause

Kevin Barker

there uncertainty Okay, Is attention thanks. Is main a you’re helpful. don’t inflation? and mistake paying out to thing significant say Fed? a a overly the where economic see we Those I the today? do see risk that tail but it want given you aggressive the greatest very two view, comments the environment it your tail to current risk? Fed? are What that In are

Peter Federico

the short-term Fed quickly And within have are persist, Fed adjust Fed sheet impact say sell in who could were What becoming pressure of If you adjustment more assets really the tool. there be significant they at obviously, sheet could X% on the or the that, quickly. – to could current a with to has members aggressively. run on if going curve shape of that rates an believe would is is policy more the quickly. adjust monetary inflation be It are were sheet balance situation yield that for Fed. balance more balance problematic your incremental The to its more in the I the CPI it to certainly, outlook there off even face

the that The off run there lot to area can disrupting in sheet. within for even the be that example, their balance sheet is their that Fed they Fed a an will the quickly market. reverse as of quickly indication that’s trillion themselves $X.X balance So, relatively as and I debate there how the that reduce at think fact without facility, looks the repo can they plus

So, respect area monetary I know exactly adjustment. policy we the uncertainty the for is to greatest because there going that that’s use how tool is to balance don’t with Fed think that the sheet its

Kevin Barker

Okay. for taking Thank question. my you

Operator

Markets. go The next Lee ahead. question Please Capital RBC comes from Kenneth with

Kenneth Lee

Good Hi. morning. taking my Thanks for question.

Peter Federico

Good morning. Hi Ken.

Kenneth Lee

Wondering could and Thanks. as you just money on bit talk dollar roll little change, tightening investments think starts about you to the new dissipate? if the Fed could more returns expected especially how a starts specialness

Peter Federico

quite I ROE base have seen will just of talk about. the But digit of Sure. the Yes, in mentioned, then improvement Chris I have a start into a as bit I will bit sort little and low-double ROEs range. we

is could Chris, Chris opportunities And us. improvement. going be So, we meaningful remain specialness for widen And obviously, mentioned, some have to some further, go there spreads if seen ahead. as there positive.

Chris Kuehl

Yes. No.

– coupons, will end area. gross the production Xs help specialness are XX% the to But coupons degree. roll are range. production in currently – way, in by lower XX% without end Currently, on I range, returns, that or digits. it the towards returns But specs Peter some widening, and But in high-single are the to spreads those of have that offset mean X.Xs will obviously As of specialness. coupon the towards production that within we higher higher the roll said,

Kenneth Lee

one if any speeds, as decline wonder fast potentially just just And you helpful. just how follow-up, I Very they rates Thanks. on rise? to if Great. continue give could thoughts updated I prepayment could may, around

Chris Kuehl

Sure.

almost XX basis materially, should since pretty drop points So, over primary of year-end. are higher months, next the speeds off rates couple

couple will mortgage only note We Speeds Fed has Current for basis are incentive a for for around somewhere the factors housing entering on average around point XX% $X.XX or period. XX refinance. also should the around Fed, $X.XX, down rates to $X.XX, to turnover. is be so released float to down March $X.XX, XX% – be of a with considerably. to another days exposed a that the low seasonal Prepayment of risk the XX% universe dropped in period XX% rates around

big and shift And refis. Early cash indications signs lender also a higher of could Yes. in going be out this purchase more so transactions that for uptick is coupons. related focus suggest towards pretty to burnout or burnouts

down So, considerably. to come speeds we see expect

Kenneth Lee

Thanks helpful. Great. again. Very

Peter Federico

Sure.

Operator

The Hagen comes from Please ahead. Eric next question BTIG. with go

Eric Hagen

from Good couple Thanks. morning. A me. Hi.

specified least costs? are of cohort funding forward? credit that to one funding to and into say costs follow-up trying value pools into purely to difference or one spec the the that there would second loans boiled and administration and hedge on such. to decision help. impact at administration from those backed pools, specialness of by Just you you TBAs specialness, pool you any lot going lots is between does then a lower-income this borrowers versus in how mostly fit portfolio to focus the lower access in the on And folks Curious see is affordable is down a if coupon the plays your the housing, probably of the And move

Peter Federico

take…? to want you do Chris,

Chris Kuehl

loans. say, a apart versus towards, on two think second convexity homes the mean, a the between, hedging how no about we the is balance the increase repo-funded I difference heading assets from specialness just specified in is backdrop really surprised weren’t to We really FHFA affordable to there on TBA. overall to positions. two lending. is a on comes positions high-quality for focus differences on down from clearly that direction the TBA there pool and in respect those the guess and between arbitrage and necessarily see prepayment And environment. what high With I Yes. pricing is funding It’s

call – – they changes on margin. more like expect likely York for heavily be other between low holdings on the would that weaker do not expect mean very like are any them some areas The will FICO, there as and profile. the pay-up less our type are borrowers. I very, describe expect to like products look higher And correlation holdings balance is But income, the or a I in to affordable of affected as there are a much will continue other higher-quality portfolio, was have were going credits, geographies those don’t most to We to tend better dramatic sectors areas our protection well geographies be marginal protected that With the to be shifts. with are already begin products to certain New respect that I certain but LTV. and to that certainly lending lower in low. I and ways call loan but pay-ups subsidize that the convexity concentrated

going I is I again, But so don’t quality and specs. be marginal. don’t weaker materially there higher changes I on to to towards prepayment dramatic that there – don’t credits. And expect think change I affordable are the clear direction impacts expect be profile – them lending the the to

Eric Hagen

helpful. That’s Thank you.

Operator

next Cranston Trevor ahead. Please go question from JMP with comes Securities. The

Trevor Cranston

Hi. Thanks.

Peter Federico

Trevor. morning Good

Trevor Cranston

that’s how provide curve are this hedge the the on on side, the tightening you portfolio can a about a the how year? to as Question begins parallel opposed shift of in talk would also And bit shape shown evolving the you the curve morning. little yield about impact some commentary standard Thanks. as thinking maybe duration flattener the tables? Good Fed

Peter Federico

I it’s is one, to an mentioned, and And environment, important this the I last question. Thank about the case. as the think Yes. call, for I be this current continue to think going the in Sure. I on talked you

or flattening. the a Fed happens a are would higher. tightening in going and long the and to they would in the against is we know is indicate we we policy. bias also is that believes pull case macroeconomic of sort extent that toward Fed end behind see the respect the to think continue monetary volatility in back forward that of a it there could lot don’t it, inflation in move with have re-prices and market going the terms it actually what doing what that could doing and front obviously, which not market to whether or as to of I what see And of curve to environment But sort curve the of to to control yield end go move aggressively, be more rates

that the case I years, creates now hedges have So, intermediate from really us. tend we tends lot of challenge sort from years and which this of done What we in increase with rate lead X so have curve of sort a for the perspective, at rates that is is a think What hedge to in part continued the curve, stabilizing our happen the going to that was is of XX-year important then environment. to X concentrate will far say, XXX. up to certainly of the part

the X-year the in X-year our portfolio. has about XX% only about end. portfolio range in hedges Our back of XX% the about curve, hedge XX% in and intermediate our of the to hedges, are About XX% our of part

concentration move as but going a be we the to be this hedge a our challenge, But well diversified hedge hedges performance. we out, driver what duration have close and and fairly of we the keep to gap see to to around XXX% our now ratio going curve, playing our are to really overall of with the do contained. stay also a in intermediate it’s it’s across part is continue be going curve, portfolio So, trying our to are have

something to are is quarters. work going through to the that’s higher, few over go to curve and be bias just going that could rates have the Our significant, but that next movements we are

Trevor Cranston

it. Got

Thank That’s Okay. helpful. you.

Peter Federico

Sure.

Operator

question DeVries Barclays. with today comes Mark from last go ahead. our Please And

Mark DeVries

Thanks. Yes.

Just this talk for where to less volatility? have have get about where and you you question could see one you spreads once environment leverage widened me. stable got rate you going Could more that

Peter Federico

have this the we I mean a Sure. Well, we have past. capacity. in lot talked of about

comfortably at If X.Xx current look you leverage, leverage versus X.Xx, just can we Xx, operate certainly historical our leverage.

gives Bethesda us real that benefits One mentioned a of operating that amount today, unencumbered have ish is in $X has and with a equity. of billion lot Securities subsidiary of capital. remarks prepared of up our excess we are capital tremendous from the flexibility still Bernie her at capital we perspective freed

really earnings able X.Xx. at point here to X.Xx from a significant an room lot X.Xx of to and be from a in have we operate the jump-off the capacity So, be easily would lot which perspective to of range,

for You still multiple really operating, think are now we are earnings. operating been generate mean here we to about where have I quarters, able we attractive

is Our existing strong. really portfolio

Our hedge position is really strong.

current have be So, relatively we environment operating with earnings to low in the still great are able a leverage point. and

couple the of to this have of the and of we be we to opportunity, I current finishes market So, to able take over re-pricing Fed environment. quarters sort the think will environment next once its the advantage

capacity think move up – leverage. have and have we we but – to I significant So

Mark DeVries

do answer. But the answer business? question, of Okay. decade hard how then as more are I how QE been for where as be most because agency feels have this terms has the artificially But can you the may. obviously, if because of they levered market, It’s one And I from to themselves for what like we been about Fed, we normalized And to be? returns a tough remember. remove it once last do ROEs the may depressing long one returns settle you what out for in eventually can think think in

Peter Federico

great it’s a Yes, question.

If XX X years of has in XX back over you look been about the the market years, last basically the years. Fed the involved in

account at believe from if it’s still ways, that some perspective, even market that stabilize the the a X%, Fed in period. whether they you are X% right But participation. to have as the would years side, the distress dramatic times time that to really taking of and I Fed step they XX for returns positive tightest, of has pressure the long, significant beneficial to clearly at basically, levered So, And spreads. downward has and you put low-double Fed’s sort business. there look done have Agency digit ownership At is last a Agency can digit willingness investor, widest on funding years in a been things have MBS levered the that a mid the very And high-single and in maybe has investor generate all demonstrated over the to ROEs, MBS been spreads or the a ROEs, in range, of the into over treasury Fed market taken of that consistently are we on come because But participated that the X%, our equal, the they both other have XX a things back us. teens. high lot so market and in that

that around based obviously think if Agency MBS and on current X.X%, level. price is be lower you the still very settle out our should very of meaning attractive. Xx that if So, than And they supportive of that our teens, that, the supportive your but business, taking account very, supporting or at operate leverage, is which in into that I dividend of today, market at low dividend can model, look the very the translate the I think business dividend with Xx a into you cost stock can

Mark DeVries

Okay, great. Thank you.

Peter Federico

Alright.

Operator

concludes would like This any conference the to closing for turn back Peter over I Federico session. to remarks. question-and-answer our

Peter Federico

look first quarter. forward Thank you We to today. you, end at thank operator, of for on your the and again talking the you participation call everybody for the to

Operator

Thank The presentation. today’s you conference has for now attending concluded.

now disconnect. may You

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