AGNC Investment (AGNC) 26 Jul 222022 Q2 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
Kevin Barker	Piper Sandler
Doug Harter	Credit Suisse
Rick Shane	JPMorgan
Trevor Cranston	JMP Securities
Vilas Abraham	UBS
Eric Hagen	BTIG
Bose George	KBW
Mark DeVries	Barclays

Call transcript

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Operator

Good morning and welcome to the AGNC Investment Corp.

Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

Katie Wisecarver

Thank you all for joining AGNC Investment Corp.’s second quarter 2022 earnings call.

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

Peter Federico

all and earnings In will second the during prepared AGNC Good thank call. the I factors for discuss the remarks quarter today, that macroeconomic markets financial morning my the drove you of joining performance second quarter.

first to tightening, quarter MBS the to XX.X% in indicated also quarter the environment and XX inflation Bond rates yield second particularly performance S&P of trillion line April of income the will June. conducive of and short-term and change rate broader X.X% MBS during believe AGNC significant quarter Financial and the The of the than quarter, pressure X% measures represent and Agency as accelerated bond we be year years. in bonds why is $XX second in meaningfully quarter shareholders. a remained strong XX.X% will macroeconomic and likelihood Index challenging Index financial year-to-date, I Index widened performance measured worse-than-expected and The probability positions. policy earnings XX.X% monetary fixed of performance in and led for on under Aggregate MBS the favorable second Agency these improvement rates caused discuss year-to-date. significant market, it the during also X.X% June. hedged falling fell between environment The more percentage Agency weakness the a our Importantly, in spread Fed a monetary pace representing more fell increased year-to-date. and The high markets the than higher again in was in by risk-adjusted the This volatility. interest the worst our Bloomberg that Bloomberg following as and broad-based MBS the in treasury basis the swap entering with on market an unlevered fixed differential returns recession policy Note, income or materially historically was making performance data. Agency as in in price half The in generating weak

on any Over measure. by have meaningfully last MBS months, Agency XX the widened spreads

at Great stays of extended today’s that this gets in This trade wide for Housing period an by midst measure, about over XX-year current meaningful to the of or XXX is the basis and treasury Agency the more end between this year of One XXX yield simplest quarter rarely the yield did a last spread basis spread or differential differential period any XXXX, wide the time. level Only note. spreads points of XX-year than MBS measures second time. the By that points. the above in the coupon Crisis, widened at for MBS have of

As we portfolio. to wider spreads on existing have lead enhanced earnings discussed, our ultimately

roll provides example net great this The second dollar common spread and nearly as our of XX% dynamic increased share. to income a quarter $X.XX per

Our improved margin net also interest materially.

value and a with per associated dollar wider our in despite improved So quarter. in on spread income net spreads, roll decline share second the the book basis

In addition we improve. to positive of is also earnings, us give seeing a strong number MBS performance poised confidence of to indicators that the are that Agency

levels, historical any First, by Agency at almost current attractive valuation MBS measure. are

Looking levels to buy-in these have proven be history, consistently opportunities. spreads back at good over

extremely monetary sales actions the asset policy by their The adjusting clear Second, the that federal made not their we their is believe funds is rate, sheet balance tool primary has Fed low. the risk through of Fed and it words reduction.

supply at of which Third, occurred supply and the half with supply on market. of closer improved Agency be And was protracted as Agency valuations MBS the to net mortgage range, with to this MBS $XXX developments us historical to be the higher, the expected has having of of Agency in and near of end. period have to nearing AGNC’s favorable MBS Agency most however, any would of weakness year, current are in now as significant At the for confidence the environment most the for beginning issuance first billion, the that on largest point is supply billion sector existence. been MBS outlook they positive in $XXX MBS rates the materially. low, net private year. returns importantly, its is the during the Agency their already made the the mortgage prices that have year Today, record. economy These With levered slowing, it they house are expected elevated give

opportunities as period investment turn adjust will favorable on results will to in our including detail. leverage to of financial improved conservative that, positioning, With increasing this to the for greater Bernie review this to I further over subsides, volatility capitalize look this our environment. Bell call we Given now outlook,

Bernie Bell

you, Thank Peter.

in equity value and was on negative a tangible common share. loss decline For XX.X% quarter, of tangible share. the of comprised second book declared comprehensive quarter AGNC per per Economic for common net $X.XX the dividends had the XX.X% $X.XX of return

last our tangible for Friday, July X%. of about had book As value net increased

position with during quarter, rate continued further we and lower took at down the conditions X.Xx of we operate tangible mid-quarter. ended as to interest Given the equity. leverage favorable reduce advantage to minimal doing from quarter prior May the our the the market despite in equity, In exposure. We the quarter challenging X.Xx slightly in so, performance of stockholders’ of end decline MBS leverage

assets unencumbered with position at and also $X.X end strong the the which our credit Agency captive liquidity high-quality assets quarter billion, Our remained of held unencumbered subsidiary. at MBS and broker-dealer excludes notably totaling cash

second three dollar our second outperformance roll dollar the as performance primary increased highest largely basis yields XX was XXX to higher over to despite quarter over to in position, swap our large expected a portfolio well interest in drivers: asset in increased interest excluding Thus, basis significant rate our pay increase points the offset smaller income, points, catch-up, net due extremely net the as asset coupon our roll share and quarter. quarter, $X.XX cost. Our $X.XX for shifted per in for spread base, level fixed and which spread we strong the This decade. up funding the

income to remain since the considerably mortgage the the our life roll Consistent short-term specialness with end second that against higher the dollar as are decreased rate, result our expected protected quarter, spread well remainder a Although as dollar has hedge rates year roll should our the quarter. and position. net average moderated projected CPRs large higher of second X.X% of of of over

quarter. Our for actual XX.X% CPRs the also continued to slow, averaging

equity at equity of the an Lastly, an to Late book offering common share, program agency $XX issued which however, at I we quarter, to mortgage turn through average million value. of broad call price price accretive early opportunistically million a quarter, $XX of Chris in Kuehl now we our that weakness, in share discuss of levels discount represented per the at to to to the were response market market. $XX.XX will over per our book common at-the-market equity repurchased in significant the value. net $XX.XX average

Chris Kuehl

Bernie. Thanks,

slow, highs the rate as agency headwind activity supply are the technicals interest MBS for XX-year remains volatility the rates While spreads hit housing primary Agency begins and improving near-term. to over mortgage to

during to XX basis first off yields quarter. treasury than smaller X respectively. in the lower only basis interest the During rate increasingly in points the understates led caused levels In more benchmark curve this observed parts yields hawkish volatility data fluctuate X-year XX disappointing daily Realized of in reached yield but QX, the as volatility increased to and points the example, the comparison rates the inflation quarter, than highest weeks then years extreme sentiment XX on with XX change Fed many further experienced materially. sold MBS second higher and This treasury rate outperformance led the of X.Xs higher The of coupon basis X underperforming reversing and weeks. Xs to the quarter subsequent much coupons, Agency retrace we XX-year QX June, coupons. during MBS weakness the of to second period-over-period second what and for move versus volatility two of XX points

the average time, continued quarter, historical We X.Xs. reducing should than and the second rolls SOFR of well our some into to at financing holdings profile through saw rate. with line repositioning with our points average X.Xs, in specialness norms. versus start traded the XX shift Over earnings this we holdings however, in in the over average. roll of of coupons and second coupon points conditions the holdings points approximately extremely XX-year to moderated should last appealing stronger, the becoming other this blend Since increasingly few increasing investors benefit X years. relative Xs quarter the income to spreads, of sectors X.Xs be current prospect has widened hedges basis levels of weeks, a more for portfolio. and valuable benefit During as production both is actions production year, earnings Xs, and wider the implied the Roll overnight the XX-year basis At our of by several of Agency wide increases taken levered unlevered recession market versus valuations, funding nearly over of mortgage to been Fed basis have their XX fixed spreads investors. Agency MBS credit MBS are the quality MBS have as of par given coupon the The and and more never levered credit-sensitive Agency last a XX

market and agency MBS often still To down. factor more the rate this agency the even in outstanding balance the assuming will is XX% the as presence portfolio expectations. will remain end own point sheet XXXX, of levels this and the runs Fed at current its positive Lastly, point, than market significant a Fed’s likely misunderstood, of

of years been has it likely XX for by lower most the over such, than As the market held several years. mortgage private remain the the of to investors past is percentage agency next

$X down asset end, management, risk quarter, from billion decline billion portfolio to Turning our quarter in totaled hedge portfolio. the our with the $XX.X previous at consistent

Our the quarter duration X.X gap was from at prior quarter. end increase a slight years,

Given should than limited. and start risk levels, reason, have the for rate durations extension mortgage operate move our meaningfully. year, continue should another to the of current rise, higher face continue extension the rates a at will rates contraction gap. risk. more in interest extended likely to be further the And And portfolio duration with positive mortgage way, market since we duration this Said

Lastly, while to now the risk reduced during our the MBS are Aaron trade-offs turn as leverage I improved. first markets. half quarter during we call discuss we and risk, add over to the the manage proactively non-agency to the will and second likely have return increased second to portfolio

Aaron Pas

as difficult another had board the products significant through faced Agency and XXX IG the roughly high-yield equity yield the proxy in a that widened in markets XX and grade XX further Structured rippled widening basis widening in across credit a markets. Chris. and investment high as widened the and QX, another basis IG CDX the underperformed spreads points, After credit respectively, in points. QX, QX. credit were basis XX after quarter accelerated MBS challenges points quarter. Using Thanks, widening second while in widened

it’s into continue levels As is regional the been national deteriorate we affordable since at the crisis. noted financial housing on and this to both housing point, affordability At heading levels. expected call, to we last quarter’s great least

that will support shortage is housing expectation persistent to the prices. Our housing continue

sustained the major could certain Importantly, have mortgage fairly a Great levels few increase preceding further while loans payment currently period a regions has if will affordability rates shock. quality unlike issue, these sort remains Financial of stable or credit any a see price at Crisis, remained Nevertheless, correction stay and for the period.

bonds Turning into partially X/XX. that higher on increased in quarter to $X.X of non-agency holdings. was deliveries $X.X roughly well our typical at X/XX to as holdings quarter the from CRT portfolio, CMBS our by offset billion We billion securities our in as the over $XXX added tender at million offers pay-downs than

more in this widening credit capital were attractive redeploy able to Given at levels. spreads, we the

improved up our this with credit Importantly, at at corresponding of securities portfolio the from XX% holdings. non-agency non-agency investment XX% X/XX below our decrease of in quality AAA-rated represented a grade June XX, securities.

issuance total commercial have to in remained issuance relatively few securitization, securities levels backed many clearing declined and and choice While to alternatives market accept QX but residential to little had high. loans. relative issuers to finance With QX, their securitize

supply issue CRT spreads. some first Additionally, issuance driver of at This to opportunities extremely for XXXX, wider attractive new all was was a created AAAs and of half exceeding has selectively elevated levels. which with us XXXX quite add the large CRT significantly

expect on to purchase with volume light falling to technicals market. GSE’s a Despite has non-agency spread the originations, supportive securities challenges the Similarly, of risks the as are for wider side. supply CRT spreads, supply result declines. reduction In we and of a credit fundamental the technicals to residential in spreads continuing and even the This increased. our mortgage issuance be Mortgage approach a we the volume should year later in second these as portfolio. forward, dynamic in expected take commercial that, of transaction year, CRE improve and to decline conservative improving is have half need both declined the of origination for are protection Looking in the the markets,

spread I’ll likely the entry potentially potential call volatility over lead recession turn – better back that, As concerns With Peter. continued points. to will to and

Peter Federico

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

Operator

[Operator sir. Barker Sandler. with Kevin comes go The Instructions] Please question first with Piper ahead,

Peter Federico

Kevin. Good morning,

Kevin Barker

you seems TBA here. are conservative the taking investment dollar little we’ve the Just you are still pretty given outlook. you returns the quite on macro some Why some these here margin for seen on holding order outlook, seeing obviously, It in harder best are a expansion up well. a wide rolls given spreads very are to are are like push advantage bullish Yet of that fairly take not leverage of approach time? investment

Peter Federico

Yes. Thank outlook are you on our our question. leverage. think, today, tried communicate that in is market question. MBS an ultimately at MBS Yes, in on for constructive a significant or what for Agency described it’s more the And inflection Agency for I we outlook we essentially rightly And to obviously, as good a you the more are and nearing towards we point our constructive the improvement opinion. view

stock the you or the the supply the the market, in date, to challenges conservative some we mindset the returns. market improvement on to is what MBS and the given for Agency of being so, more the or today, of Fed the Our key the appropriately it faced outlook all credit out, in of indicators absolute be has significant stability of given whether as or, effect side uncertainty or Fed of described market the the err been that point

Chris market. as mindset will be out more remarks, the forward going constructive and our pointed prepared on – So in his

higher cognizant more somewhat operate we also are as fully, said, Agency past. interest have a performance. are volatility, than yet to likely this headwind still not which, rate extreme Chris environment going have leverage to We that the right? MBS seeing out is to played forward we But in is We be with

abating is is somewhat, seeing although just still a which outflows, some positive bond that uncertainty. And are then signal. there be We macroeconomic fund would overall

we’re position to to our MBS, over to period. on the time. be another we’re through more fair think back performance moving toward ultimately, say I think of But optimistic have Agency or this So normal and likely or X we month I X operating fairly that it’s get

Kevin Barker

the that rate, in Given outlook you to or on incremental Can just seems here, and today? update the continue to right the or at on you could exceed to given is. it generate demand with like investment returns returns faxed the the your ability least line maybe yield run relative your where thoughts peers your any just dividend give

Peter Federico

set that because sustainable at thinking try dividend we Well, mean be portfolio. this our what dividend in with think we thinking that economic our shows level absolutely the right. I earnings doing most to, lead so dividend. ultimately to a We try when the always about to you’re of believe, will is I consistent is our you’re forward

we show it here, the So was environment. today, given environment, respect today’s in the our earnings we position I this think were dollar economic period then that strength are prepayment in importantly, earnings this the as that And improved as given all what and with our sit shows portfolio. dividend the to level roll rate came results on appropriate, environment our quarter, into spread we net a earnings our of in

the we and economic Given beginning the a more generating at money better return we dividend our net The of basis today than roll today on spread currently are were, the environment, year. dollar than all spread it of supportive was is that’s income on we the portfolio and that have. level

like position feel an our right lead a significantly are certainly will better And account have, in the we our dividend will always position a in redeploy we’d return And take of where really that think we’re good position particularly we’re about real in. environment a of dividend. that you position we’re current can proceeds into that we now, as to strong that environment we the we we sustainability that’s in. and But So feel above point ultimately strength. levels out, yield, like that to

Kevin Barker

Okay, thank Peter. you,

Peter Federico

the for question you Thank Sure. questions. – good

Operator

next go with Suisse. Credit Please with Harter The you. Doug comes ahead. Thank question

Doug Harter

level that think how should about Thanks. what Can so? the the and just that? trend earnings how for XX return versus coming your kind of talk outlook in economic – you dividend you think the about versus do levels And or you months

Peter Federico

sort Doug. to extent, had. for dovetails you the just question It’s of Thank some the Sure. we question,

can I bit. on little expound that So a

your I asset is return that about you X.X% you marginal just think asset for at portfolio. what example, hedging points. forward account your margin, your that that X.X%, Today, earnings same around of and sold in think The sort basis for really if your mark-to-market when could as would costs. of the bought our portfolio on of into today, you you’re portfolio? for expectations return about on we do really If will, back XXX mark-to-market talking net right? with the is the all we economic around portfolio, economic be it what take yields the or something returns, It’s interest calculation yields, neighborhood existing

leverage it Xx, you ROE of would You give gross a that XX%.

Our operating would you costs for call below XX% your still somewhere, range. equity return return on to get unlevered and add-back XX% a X%, position, in, example, mark-to-market economic it,

at, we be $X.XX the assuming that just something the say our or would our nothing value be share, say, economically. a a dividend in that that on around economic earn portfolio XX% would your book times $X.XX So a about should would year reasonable another next over expectation way, at that reasonable Said earnings that, level. changes what neighborhood portfolio be estimate the $X.XX of reported current $XX.XX above should the

the So would that from that’s perspective. it helpful. I that’s about way think I hope

Doug Harter

and – that, know value It that I I book guess, course of returns. handy, quarter, how of is. lower you the therefore, but over if changed the second And wider the spreads wider in kind have factoring just don’t

Peter Federico

first part that of How again? say did you the question could sorry, that I’m change…

Doug Harter

quarter, to the in the How lower value just type that were but second if change mark-to-market… the we book at similar course of over factoring wider look that spreads, did

Peter Federico

where XX second of we versus end over spreads quarter, quarter. are you first exactly That’s points basis the on think were about probably, mean, wider average, I the the if end the quarter, the of at right.

incremental, be X.X% calculation. you that’s call an that ROE using So would it, the

that. think you way the that’s So about

Doug Harter

Okay. sense. Thank That makes Alright. you.

Peter Federico

the you questions, for Doug. Thank

Operator

with Thank go Shane you. next question The comes JPMorgan. ahead. with Rick Please

Peter Federico

morning, Good Rick.

Rick Shane

view about we the discounted for changes taking we trading. forward MBS Thanks negative capital? I’m Agency a you Can deploy go you where in convexity the you strategy, my think stack. take Hey, you of and curve talk want look in play if to Good bit the little Because deeply out further, the But want think are questions. how to you stack. when down thinking, to about morning. you to investment a your lower probably then factor the up and coupons a about short-term want if

to but from perspective perspective from love the I’d – get the so would perspective this. equity your question I’m again, And get investor of on bond asking of an views the the love And to investors.

Peter Federico

question. good It’s Sure. a

we’ve composition talked movement another for and obviously, last from the our last more of perspective So toward this in this higher portfolio was example MBS. quarter quarters, coupon a of about couple

the going bit migrate negative sense, positions, they investor we higher hedging those have greater coupons, you’re So most change It Xs those – most have risk. the we little positions, no significant two-sided coupons we if position, return we reduction environment. earnings, call it, position a exchange and way instruments, in rate of like to X.X about in for And the a better Xs. those give coupon typically, those does our doubt. much It’s have profile the those production in, for a significantly a But the will, X in lower coupons, a to convexity us in think more now current you our to through levered have have, return. toward because current a because

was things also coupons that the duration Chris, to to to But that funding. those gap One for prepared roll of hedging the favorable that? more coupons Chris you Over with do to it shift. positive dollar of return return on because of composition, the offer a attractive. does that us those variability And want the particularly the dynamic of also but course, can remarks operate likely us, us, prepayment mentioned his generally time, more see significant the fact that is portfolio composition you’re protection environment for incremental of give change in speaking, add those example, coupons. for

Chris Kuehl

portfolio relatively of for convexity last lot for little market risk. money in The the moved mortgage to add current out you off. are further – two carry dramatically just the would as and taking incremental our paid sold strike profile has I as over additional improved a at have Yes, convexity and has the quarters rates a on holdings as further whole our of the spreads,

range a scenarios, And less across wide pretty is rate so of for rate even need optional there protection.

that about the year. to so our that And upwards is billion some and consideration sloping. And QX we other levels your second to benign. then a this the saw the better bit time of record since during You than that position it levels. it risk the quarter. was is a getting the It’s coupon swaption relates at the was now, at by long-haul the is Duration reduced is the implied question symmetrical more of much But still less good was $X.X to profile fact now that portfolio much very flattened convexity the monetize start stack volatility back exposure. of

of the is potential. return there are to continue total production which be continue offer And maintain float large as those still certain scenarios. where some so a will perform But portion exposure speaking, in still lower to are the given basis marginal coupons, reasons going to that capital there I we to coupons diversification likely would say best allocated return generally to towards is scenarios well coupons for on

Rick Shane

there the the me it a at given road extravagant if strike been premium in but a current more when Got the you rates it. the on coupon the last that means, does risk by further is have refinance little – And where interesting, current any not coupon. look down decade, we slowdown, over bit if enter we it’s look it’s look

you year the But we forward so why down come I’m just with down, faced. to start the again? forward again, look starting the in understand first the environment stack and And not the rate we of – curious not given did curve as what half I moving why

Peter Federico

account moving think but the you much get so that’s not will I which your I better And And issue, I coupon, what be about described in be really for gap, the You perspective. your question materially operating example, a right? think the talking by where duration you also by think reasons is your return position. a with also be have on to adjusting by that the a risk Well, potentially your and to you’re those key, coupons want important. why for and down Chris can you hedges essentially, have hedge curve earnings positive available and from that

ultimately, you out, XX-year having right curve curve and, As even yield hedges, forward fewer example, flattens in be the is point that for would more scenario. meaningful

Rick Shane

very It’s it. helpful. I appreciate Great.

Peter Federico

Thank you, Rick.

Operator

Securities. [Operator question next Your Instructions] ahead. go Cranston Trevor comes with with JMP Please

Peter Federico

Hi, Trevor.

Trevor Cranston

increasing Hi, sort Listening cautious little to are guys guess of so little to you rate through of sounds your leverage. on it morning. like far, because in comments particular. the a thanks. Good trying benefits bit staying aggressive I of the to near-term waiting volatility, of think high levels a I’m bit get more

of risk of – are from And taking that would if keeps slightly next some available today? is MBS volatility months, the am tightening right And up maybe in wondering returns aggressively as – that near-term and maybe about to you lower more now? expect guys are also sort you over you of of see that normalization couple you so period of maybe over that I additional some that widening leverage concerned there result

Peter Federico

question. good a It’s Yes.

spread report. Let in There really as two-way runoff, The more the is every out, positive more a variability on be a Fed is as is, the spreads why me environment still in market. October still high. market may widen today the maximum Fed tomorrow. further say given We what do. adjust our will outlook. there I risk that. reasons is is make inflation volatility pointing believe month is Fed could which essentially to finally clearly the I got in is is highly the of current dependent there couple bit full we points There as the you’re first more little the on We sit, What think, would

two-way So, from rate why perspective, to. spreads spreads market. market there reasons be risk wider, but more is can there the somewhat risk also, today, could think in our be I is more there tied the Similarly, the in is

appear We seeing it topped have term that mid-June. may the at in does over obviously their rates longer out are near-term peak that,

of of cognizant slowing environment of the previous that the because market, come they reason ultimately, its plan, are much is balance we Fed durable successful the cycles. that’s the at from returns ultimately, to be why spreads But out may are. the this where they having supportive unique and So, benefits vicinity one gradually more that step for in both of two may said, staying things. is those deviate and case than sheet inflation And if out that is of then that the and these not attractive can economy of curtailing be runoff would AGNC the

So, perspective. could be our really a favorable from longer investment durable that environment term

we because So out, the and as cognizant, so point – you are of lower a of rallying of dramatically in the changed potential tightened, favor for dynamic the particularly spreads potential of but supply. supply has

So, that’s something we that carefully. watching are

Trevor Cranston

Got it.

then And you value trended sense. us makes far can give on in so That update July? has Okay. an how book

Peter Federico

X% she I this of that. prepared Friday. morning, we yesterday evening. remarks, was said probably Actually, as up about Bernie’s as it’s sorry, In up am closer I X% it to July to last for Yes. mention through here meant sit

Trevor Cranston

you. Thank Okay.

Peter Federico

Thank for Yes. you that follow-up.

Operator

with question next The UBS. ahead. Please Vilas comes go you. Abraham with Thank

Vilas Abraham

Hey everyone.

Peter Federico

morning. Good

Vilas Abraham

very good One morning Peter. –

nimble volatile past in how it very capital just been less be have different And your You describe with management. you environments? there? specifically mindset may than QX Can

Peter Federico

a existing were book value. always and then the through not in markets a discount amount, our that the in at of the to always we also accretive equity levels saw but can Well, to markets were that transactions in tone markets We quarter. was the issue in later significant Early had example. opportunistically equity quarter our This from dramatic ATM trading shift that late look we are the to importantly, the significant financial a were opportunity, last the we we the certainly, overall quarter, and value lens program Yes. shareholders. accretive of good in to at how execute capital book activity, at a quarter. But our

to as earnings. book an stock, again, of to, and use would And accretive accretive to that we have opportunity value which been course, so buyback

will of continue to do those we activities. So, sorts

activities today’s stock We the example, the look decision in the what use Obviously, level, existing of how stock will to in investment market. one environment our accretive our at is buy of to key our in inputs dividend proceeds, issue very are capital or opportunistically. is for back markets

those just morning, which this is reasonably margin wide positive. we already there between is As a discussed two things,

opportunistically So, use we will that capital activity to shareholders. incremental our to return and very continue look generate a for at our as way markets

Vilas Abraham

here? the leverage do weigh that in as you those of incremental to investments factor how make two you And ways in, conversation context the

Peter Federico

where we for transactions. Yes, respect into what clearly, great where decisions that on will want to do an have – our to example with we always markets are we leverage with capital factors certainly point. impact or respect our our If to be

to perspective – a are we from example, trading up, if environment adding accretive alluding essentially existing book most a value cheaper at to our opposed to to increase to was shareholders. buy transaction the an way to For would stock that wanted were back you leverage way best a in a leverage. as increase investments. where would would It leverage be be take to discount and to It were shareholder’s we than be we

in on where has But an investment relative it is value depend another. a things environment to feel calculation. about use And as two happening to we those and trading one our book what’s will certainly in that interact with our how that lever we So, the stock environment.

Vilas Abraham

a you Okay, talk moment. just for then about And fees great. if could prepaid the

how see do And rates potentially some historical can do maybe that us mortgage where near-term? they going in if for Just back up, on put context you example? go for could low there you

Peter Federico

that. Sure. to I speak have Chris will

Chris Kuehl

move I I to relatively elevated rates, turnover from out turnover The very even cash off slowing, in drop they with a said, live think accumulated norms slow. turnover. the continue to There as will appreciation. absolutely for I think is deeper of continue robust to work, going And the refi changes certainly I certainly but behavioral is levels, and is for refinancing to low-cost isn’t activity it’s ways given continue cohorts. jobs That behavioral But a contribute think reevaluate of the shifts say to very equity strong. is strong environment activity to and lien. a combined deepest historical better, extract the with going lot relatively post-pandemic do There to house a with cohorts. market But smarter, first No, support more without great demographic difficult I people are think continue efficient where That higher the will labor post-pandemic, market, turnover. reasonable question. say out-of-the-money an consistent to course, housing to would least envision mobility. price helps where out-of-the-money would at is Yes. I it’s

past We often the of it’s just mid-XXs. have had around. in great expectation [ph] question, XXX-plus out an point a or CPR cash flow. But floored appreciated it’s turnover X% And even this convexity a a around is I unreasonable a ‘XXs, late CPR at and that’s to half the year important don’t And think shocks well basis CPR. a in the the how not time third rate

Peter Federico

the to an could I I to thing add the the outlook discussion just portfolio. prepayment if with for Fed’s expectations that, important And is one Fed think for and respect this

Fed we full the right period its probably will in September, if portfolio have low-XXs up off the October talked on next is to that by still below to gave respect for billion based the Fed’s at ramp example, of so year next just month, runoff as we $XX about Chris go But the and we be probably economy, going the month. prepayments, through around cap. the today’s the given in description year, per with to you running end October, occur than peak something As November will its runoff a less will,

to difference MBS material cap, constructive a also their overall the where I relative they think So, which are market. to Agency is

Vilas Abraham

Great. Thank you.

Peter Federico

Sure.

Operator

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

Eric Hagen

Thanks. morning guys. Hey. Good

good one think I morning. – on another

out to support portfolio looks carried guys the your Another $X.X call one very considered talked have, and liquidity supportive same a about. very have it to when on been excess around time, which in historically X.X% billion more it, your of leverage At model high support has also leverage your agency also cushion here, leverage portfolio. margin call in again, excess the running X.Xx more been an And you leverage you easily can the higher. has have agency call here. as like portfolio supportive, around, not And guys you it, that, comes

of you that broader does the threshold? of your about agency And So, that about what the to most a liquidity current respect in being maybe the comfortable is especially how the margin market, with or environment, with talk drive kind level think going as percentage portfolio? forward

Peter Federico

for Thank question. you the

that is view obviously very dependent dependent. dynamic sort liquidity of market would on I with what So, start our is portfolio and very and

I in comparison important we where a so, basis percentage perspective, versus really think also of of were. And at understand the today context where moved. market liquidity But I and to of today’s it’s are where liquidity look we on today’s sort from the we a have

have point that is a make perspective, shock, the a massive absorbed would So, first negative – right. I from liquidity we already

spreads, today, already that implications volatility So, because XXX I have comparison position. had anymore months, still over But don’t tremendous the we move we is interest strong liquidity as apples-to-apples value. necessarily incurred, in rate last a XX to book basis think example, very we the a sit have that’s the for point

really that’s critical. So,

at and what liquidity the pointed as The particular, portfolio our as way, being impact given we are more much is portfolio against to us so a increases position, protection defensive our which evidenced short-term out, close more rate actually operating is in has its the another our leverage it, hedge what earnings. effect Said on other ratio today also but in of you using position. XXX% with composition tremendous lower high has liquidity, is up

our has They able duration high that very liquidity to will absorb in usage. risk all our kept shock. have We limited, of be essentially ratio a low. That hedge also spread profile gap kept the derivative position

run. will that over are not have those long the So, we positions

liquidity of So, think when what all the liquidity terms in position would to and our are probably low at near say I equal, going usage about we other portfolio’s you our things position. point it forward, the does

and leverage leverage. we think operate at comfortably out, higher pointed our very when I So, going forward, about think we as can you

All into liquidity things have position. of to these go that

we on the based on operating dynamic that’s particularly I portfolio a on as expect environment. with decision. It’s based the So, the already it’s portfolio, based And we ratio occurred it’s over be have. – hedge a not will perspective. It’s defensive from time, shock

I hope some extent. to that So, helps

Eric Hagen

that was Thank helpful. Yes, you.

Peter Federico

Sure.

Operator

The next Bose question Thank KBW. George comes you. with with

proceed. may You

Bose George

morning. Hey everyone. Yes. Good

we cost the available now, volatility the elevated about think hedging cost there? of convexity versus to was embedded couple kind talked should – for spreads a of that’s of spreads? have follow-up market, Just me. in how given So, questions of Actually, the the the sort that you in just nominal we when what the about

Peter Federico

the significant a Well, in Yes. current that is part. environment, obviously,

have or with about ever high-teens talk attractive So, are we as account have incremental those which to convexity, the and as take when positions. into you in they opportunities, associated been rebalancing some mid-teens, hedging return requirement cases, do

volatility marketplace We that, don’t But rebalancing to the sort assume sort the cost negatively that’s will If and to is have most that meaningful to would a current already to the the that we in the coupons of is you the most going is, believe ongoing stay convex where are coupon talked about position. profile be have assumption of it then case. going have that that or the the fact requires production rebalancing.

volatility out, pointed increased or XX% realized second Chris the As quarter. in XX%

believe may moves levels, it basis day, point basis will quarter or be XX to stay moves more for quarters, volatility or two point X not continue basis the X It next While point day. to high volatile is. we normal basis as will realized that return don’t a basis basis XX or point, as point certainly XX point or X it a

but there to historical over we with So, when you you incremental about right, an cost, position, line think move expect time. in back cost is averages more are that the

opinion. So, our run it’s with to something the over just short in we are to going deal have

Bose George

sort that different Okay. No, makes Thanks. of one And just then question. sense.

preferred curious F that? reissue floating are in call to thinking they market shares, Series open and am Your there. what that I just you go mid-October. Is

Peter Federico

be. would That

callable. on that haven’t we period, are that made nor obviously on decision would those a we call We that into a issuers potentially until make get decision but

Bose George

Okay. is… And that market

Peter Federico

you referring was that Yes. Yes, Series think to. were C I that

Bose George

open. is market that And yes. Sorry,

you. Thank Okay. Good.

Peter Federico

new a perspective? from issuance – know I Yes.

Bose George

Yes.

Peter Federico

Yes.

Bose George

great. Thank you. Okay,

Operator

Mark question go Please with you. ahead. comes Barclays. DeVries Thank The next with

Peter Federico

Hi Mark.

Mark DeVries

any to Are rate up? color should of any waiting leg to kind Thanks. that? Hey. expect one Are where leverage. just you the on sense of you cadence may down And into which question we starting volatility you for some? you I take on for can for you lever had give at that? kind more us die there to Is you

Peter Federico

dynamic really precision respect a meeting with Well, it there may to significant. tomorrow, to where want to which really because, where get we I again, is into when it or it’s going – a environment got take we Fed don’t may be we take

that really short-term of generally have a just print We that impact somewhat important the lot But of it in couple to inflation a volatility months next have on will I market. higher. the over trend of couple speaking, would expect got the

easier. that equation to that returns think with approach makes significantly, going have I the decision for month it this very added time, are disciplined. returns going of added And but not that a little opportunistically, of again, be in we were attractive We in some investment actually given we very some is period that of to this July, But which the some to period seeing. continue approach us mortgages have bit we

Mark DeVries

you. Okay. Great. Thank

Operator

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

proceed. may You

Peter Federico

all you forward to for quarter look second again of third end participation speaking we earnings you thank the again, call, quarter. and certainly the at our Well, your on with

Operator

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

now may You disconnect.

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