- Earnings call transcript Q3 2022

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Operator

Good morning. My name is Dennis and I will be your conference operator today. At this time, I would like to welcome everyone to the Dynex Capital Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alison Griffin, Vice President of Investor Relations. Please go ahead.

Alison Griffin

Dennis. you, Thank thank the and for us joining Good Capital you third for Dynex call. quarter today morning all XXXX earnings release call today’s the October associated and press XX. with morning, SEC was filed this The issued with

may of Dynex homepage as the website on sec.gov. at well the SEC’s as view website the dynexcapital.com You release on the press at

from Litigation XXXX. the Before may contain inherently subject call by those words we this meaning projected statements the forecast, predicted results project, that of conference anticipate, be company’s and/or begin, as to cannot forward-looking actual unforeseen of statements we of expressions plan a risks. you and considerably risks wish and are Reform Private expect, or believe, timing of and Securities statements The events external identify those to within which Act that quantified. certain remind factors estimate, The some forward-looking contemplated or of forward-looking result uncertainties, differ could similar

For these factors may please SEC’s streaming conference a Reports on website. the found the being with presentation, homepage be under the Quarterly broadcast The also disclosures on risks, additional referenced Center the well information our Dynex Internet of as call the which slide on webcast found This as be the Investor link live over on page. under with which be refer our filed Investor a SEC, website. to can website slide is through on presentation or may Center

Officer. President, with to President and my Rob Officer; and the Byron that, Chief pleasure call Officer Popenoe, it Investment the And over Colligan, Chief Co-Chief is Officer; and is on Smriti to Investment call Financial Boston, me Executive Vice turn now Joining Byron. Co-Chief Executive

Byron Boston

the with with then shareholders call will you, and few start and few thoughts let our Rob over more good morning. a specifics. and for messages, off Alison, Smriti me Thank And take

quarter. increased, incredible an weeks this and major especially the Across mentioned to moment as have during all in shareholders, same And materially storm, is the was to the our Dynex the the to I not asset I’ve to in boat. asset two classes, are withstand in of a managers has boat in know, The though last So we fallen want all past, prices built Capital storm. same even history. volatility three are you all

type We of preparing environment years. this have for for been

managed of other guide have like will the markets before, is experience to market us through it our this We side this and flexibility through complex and cycle. that

to from and want our simplifying open into Given my transparency points. five by these I and tradition of challenges dialogue maintain takeaways complexity, this quarter key

of our ago, March First, we prepared is in after up liquidity our Dynex in and focus solid. increased and on years Several liquidity this for credit market. up moved further proactively portfolio we is XXXX.

markets by is income is liquidity portfolio backed of Treasuries in government are the now. second corner Our Agency in are and U.S. and and fixed very the efficient U.S. turbulent only U.S. history one liquid securities of even have like borrowers real mortgage-backed securities and a markets very building in a estate. guaranteed mortgage-backed to we

financed position liquidity securities liquidity the our all, also have we of strong. is our Second, are liquid [unpledged] most Most is asset in that cash, but easily sold. of Agency or

with As to confidence. able toward the our have move manage markets took been a we volatility, chaotic decisive sheet balance

We of advantage we markets environment. calm also opportunistic return this take when and enough the capital great be have to

is through with complexity We flexibility. our insights And back as our strategy several to the we to built investors ship was storm tenant the the the highly shown as XXXX. We far and tomorrow. are in markets as strategy began market the we events inevitable understand out our too what as manner have strategy nature business of reacted our environment. experience in come And what always, need into of are have And by team that have can't preparation believe surprises about committed just Smriti call guide and experience team as we let long-term. the which happen. we turn repeatedly We We're helm. than are we allow will Dynex's this past, years, through management thoughtful them past our we to our our that that, over of done. that complex global and us environment, through core shareholders, market done increasing at I'm said more this other trustworthy experienced sunshine have guide is The experienced over in Third, mean you, the prepare, you proven to an will to this as ever, that long-term the this. is is and probable. the and determined as past, very market doesn't predict in for value a disruptive talking investment we our global to disciplined. in its Dynex results. we provide details. you to And manage volatile Fourth, But to the we for environment going transparency more With Rob risk the and give

Rob Colligan

economic increasing TBA of declines total significant are amount and of recent The million, value common of risks. economic company negative by and portfolio Thank mortgage-backed our loss $X.XX of our We reported driven believe XX.X%. and quarter, securities, by policy wide as share return of a or G&A of in EAD economic per $X.X available was historically a will securities recover the rate interest costs exceeding this and rate flows severance driven the the value good the We to simply levels, all. Byron, thoughtful will was of significantly and risk, of geopolitical At key The comments. this improve EAD you, distribution onetime and during hedging Spreads month our interest including the liquidity return backed this in her transition occur near positions selection paydowns time. cost related for value management, spreads total the a Smriti hedges morning activity quarter. value. comprehensive of when widened September. especially the cover negative as quarter. CFO or third activities. management accomplish include or in strategies protecting through over asset mortgage shareholder into $X.XX Dynex, our market $X.XX spreads Earnings and include expenses

years. available highlighting interest the use rate is rate of earnings instead GAAP are distribution. the rate instrument hedge interest the Dynex Through are that $XXX for recognized These not distribution would realized of the the If for mitigation we're XX, million activities, net futures. futures hedging company's deferred hedge risk gains, of interest September earnings swap available impact immediately hedging benefit primary approximately has as losses. does our next estimated quarter, hedge included per interest gain $X.XX for company and or interest benefit spread of the third into quarters. This $X.XX in of the over both the million to for instruments. hedge REIT our was is futures, $X taxable strategies, reporting, amount primarily positive income period tax gains of quarter, of the calculation The our be for or common benefit swaps incorporate for because and amortized on share but amortization rate of are $XX hedge five approximately in be The on and over with are requirements million company's the income XX taxable total in or down Since other REIT hedge ordinary into of part along movements subsequent amortize depending go hedge will of the component gains income, to up can rates company's and REIT taxable they a position gain quarters. gains be distribution

expect will net on see supportive for will the over dividends move additional interest rising will in costs. now week. on XXXX the beyond our release. we even to the which be in disclosures the Smriti available information the distribution turn next XX-Q, of As be to her call and income decline hedge for I'll lookout the comments and And quarter, financing additional quarter. into filed fourth Please if earnings and have our due be for gains we

Smriti Popenoe

Thank you, everyone. and welcome, Rob,

boat The I'll storm represents a then low structure family we income it, era As my strategy, on outlook. comments me peace in navigating how to a real XX important done in life And lessons my experience during in can investor. appreciate of our navigating globalization, leverage, of sailing storm. today my felt path often the inflation, to we're sailor, through sailboat. are I as markets, of and Byron's our a from global views I've rates, long-term the fixed analogy our with years a that low interest aboard our financialization, and turn offers plus an longtime pandemic. an I've certainly that transition a I'll storm, short-term and

and will be the mix excellent real there the where factors is for allocation On these the an its by storm five have residential years and the highest over environment liquid present Agency-guaranteed long-term We securities. effects of of amount of environment all first. prepared will opportunities. liquidity U.S. mortgage-backed factors and other We this But storm we investment side highest of navigate with. will backed be the to different in believe estate, the with through contend most the level instruments to storm to and new the

hedges liquidity, risk. We to The orderly functioning flexibility counterparties manner, to appear not are liquid has financing Our access be of adjust to signs and do highly us our an our perspective, our futures haircuts any can are trade from stable; there position TBA have given and maneuverability financing in markets currently XX/X. dislocation.

led combat no Our end that at and balance bonds of this withdrew there day. to value This of is raised has of of mortgage-backed and last of price rates been has and each orderly inflation, daily, way quarter. until mark-to-market price since adjustment it global assets down. the underway the would anticipated positions securities adjust had We central liquidity banks interest government sheet the mystery been XXXX. about have September and as is Treasuries so risky our the most

September October. really storm So late intensified and the early in

RMBS curve shown which widening trend at deck September peak XXXX of now up. XX. into continued our see the quarter, in yield standing seen in as in the this on Simultaneously, slide can shifted Agency have basis You within dramatically points in entire spreads, a levels widened Page has the the fourth March few and of spreads

year rate XX just two seen the the been higher bond volatility Friday, XXth. This basis is points market type of XXXXs. and has last early higher, since year points June XXX is in XXX the the of basis not since As interest

Page You can deck on XX. the in represented slide charts in see the this

year the the ride progressed, gotten has rougher. has As really

is it cycles, it's and higher the usually RMBS this negative to Mortgage Now inverts, rising not here's time. carry the Fed financing and traditional widen costs, since is historically easing great cycle. next wide what's In But the Agency environment yield investment the best to in curve tightening RMBS a unique different until rates financial levels, this happened. to about causing Fed crisis, what's investment have we the been expect spreads faster and great Agency environment this in continue. than making

happening reasons. several Now, the are for moves recent

the XXXXs, of the the buyer. And have for the since RMBS unlike banks loan appetite of There's their The is Agency there market any at different. creating no going other time First, stepping are largest is is they into Fed portfolios back, structure of and no MBS RMBS out no that buyer because market. The is net grown. Agency supply away the have also non-economic market the GSEs.

driven bid by This marginal are for value outflows. is facing mortgages the money being They is now now relative managers. So players.

demand MBS in for poorest several is been has it since picture the the So technical decades.

continue including outflows from face based fixed there accounts, of RMBS are of to been Domestic a many Agency by asset being first. managers Second, investors. money and income, are they net MBS sold and non-U.S. types selling has liquid

months. of and And do environment this reverse than We baked this year we're the few elevated. because next cash for out pipelines volume to getting are activity loan next flushed that's levels in, So we higher over sizes keeping we're expect finally, seeing seeing course origination to are the for getting expect normal continue. supply some

So instruments, with saw a RMBS. call, focus capital a our prepared analysis, risk top-down what ride storm capital we dry to as Agency standing we used our returns and in entered we management, disciplined an intensified, opportunity environment principles liquidity of as we rough the In deploy our this discussed of ready preservation. as for strategy powder as in our and persistent higher on last being

We has we and that as in have probable the mindset environment ready surprises are highly idea posture That an repeatedly discussed changed. not where must and those also occur. are we to be that adjust

with October portfolio. we results on to in you rate ride the tactical Those on we function shortage our moves points across decline XX to rougher became pages wider being widen market end about points the basis some book in and spread end. interest these by mostly some reduced to XX the the As of Atlantic, to from no the about The of the about here experienced sensitivity value Post the and in of unexpected quarter Agency spreads we basis coupons across XX end quarter book adjustments direct versus was have continued X% see is can basis September. of surprises spreads a slide at third XX points risk and own, week late value quarter gap to XX attributable and that deck. made in last the RMBS that as XX% down

estimated is is at and X.Xx. $XXX million total leverage approximately to capital liquidity Our

information, as X%, should quarter as down of portfolio. traded from some second give your rebound well ending as book spreads you end the the during the volatility the before high potential value in up the as XX%. in idea up quarter For quarter the This the

withstand we existing capital now more enough and in saw XXXX. shocks to that position, we than spread hold the So the with liquidity

another As the in coupon. here points to basis that spreads can from nominal on see on is you chart XX, current basis XX points wider XX

We also and to increases unanticipated stress our include haircut calls other liquidity. on portfolios

more to repo minimize to the potential and end. up also market. has our continue aware issues. shifted our XX% risk into year cautious as stress those stance of actions book we keenly term well on for and over of as rolled We've are environment for year We of counterparty more, players the a going in end, about view reasons other to year financing end the And the

see of point, ahead ahead. Let's plan is its volatility or At to intermediate where calming type disease. that destination. after there and now What period view When with It's is comes will usually will we already we're high be but get Fed to term for an to pause teens is key steer look signal forward returns This yet. longer and a term, through some the RMBS being some term evaluation. to important to look of technical environment, low storms boat a lower Agency and some persists ride The and in the tightening. to stop are a target-rich looking the of environment, we're time. in and able this navigate to really target-rich to there that stronger fundamental happens, the which near getting XXs, not environment. rough the

at catalysts term. the Agency see we for So intermediate RMBS in least four positive

you a future at a once very first and today, in can great return raw seen X.X% likely The assets great risk. risky major adjust This to base simply These catalyst. be case years. Agency XX one we in and of yields, the those in other for is the be credit returns least RMBS. to will relative haven't X.X% returns liquidity are lot

net in lower future. Second, the supply

seasonal rates slowdown. supply, at current are XX% originations overall This slow a Mortgage a technical net of X%. will least or approaching to winter near tailwind. forming eventually at shrinking levels, are We the

offer or returns leverage XXX asset Treasuries. have decades. points returns. interest for on the to credit At seen and volatility Third, been consumer-backed will MBS credit also if recession other versus materializes, for of in that to current spread tighter. earn decline own almost in and risk-free intermediate-term. debt. any require higher Agency levels, nominal riskier rates, a will corporate indeed At less take MBS, over not the few These RMBS And realized is asset finally, mid-teens points A basis tailwind be spreads a risk-free

producing tide turn the agent, a be investments. manager will forward, the still a mortgage can demographics finally, time, calling stock be such is income the This at for rising the fixed Global return absence same without eventually especially strong. volatility why bond money seek are This the these operating This GSEs. as the means is of investors stabilizing income persistent. the may will spread or at in finally demand as funds. into what inflows market, Going higher but could Fed income higher, market selling remains yields. higher. we And favor permanently returns the And of opportunity instrument be

longer-term for technical the also have are is So we additional as mortgages. to backdrop An stance, now, neutral we to thinking more positioned what positioning. for poor we stronger and portfolio while navigate the this backdrop catalyst adding word through risk, a on our the about technical near-term fundamental for

We active assets time. both over be our hedges to expect and our across

will on. weather as as change flexible change to can to goes as ability of the that changes. TBAs of market is designed strategy in a You think position storm with the position it beauty our a The the time

from provide to moves an As be spread us position. EAD we portfolio stability. timely to performance numbers, performance dividend risk. can rates Until and that will evolve you or disclosures our we we a to long-term our and see interest as alone structure, metric by remind the long-term shield transparent, economic fully incomplete I portfolio have to in cut to moved the grade continue by large total assess to transition additional we is our then, you more economic

mentioned, deck. hedge and the dividend. forward portfolio final forward Page our to in gains dividend substantial support of word A exist XX returns As on Rob on the the

This evident because mostly a hedged not week, It be portfolio at our yield to about common, does book for of XXX yielding not income. last X.X%. XX%. foundation futures. are produces and of spread of the in and with taxable weighted Treasuries points show leverage Xx our It X.X%, the our is ROE earnings of up basis in forward distribution, economic average forward approximately include supports value return market of the As is about of we that benefit will in the will dividend. This that available net

add share XX value assets In from boosting these prepared. for return. basis return every $X.XX addition, just book points opportunity in during will Any which incremental will adding in very the RMBS and current we portfolio spread the for wide by levels, tightening investment are Agency this driven forward per be of persistent attractive further

the are eventually thoughts: diversified to I'd following the storm as over portfolio liquid return time, that for opportunities are We we expect we like to evolve. to leave with prepared you and are new We in. a

We expect risk XX% we to for capital a and range we rate XX% to what highly the and short-term environment. And are returns some be interest transition the rough through preserve to to as on investment ride time. moved mitigate we've continue navigate believe this margin. favorable in MBS are spreads the wide, will

as While this In like book when is levels intermediate a risks subside change to we term, target fundamentals and the the stewardship recovered. see responsibility expect Byron. significant be rich many technical behalf. for your to asset take outperform environment to our And over to classes making I'm would the seriously. and is This and trust your on can I add grateful other risk. environment, shift. macro And the to of we value I'll focused next We truly with that, remain it value on the maximize of team decision very capital turn and confidence. MBS

Byron Boston

Smriti. Thanks,

moment our the be want you built until you to transitional to We're withstand patient providing past attractive not remind proven and environment. and record over I to transition environment. This to period. market focus not alternative this XX. returns returns again, displayed cycles we storm first our we're XX to Slide evolving and is our better comes disciplined track the out. last. just a is be in Let during years. on And to cash wavered that alternatives a this and encountering Dynex committed investors me long-term many also has new gyrations as is our has as in prepared Capital a debt long-term to to remind financial global and all the Dynex will this our that past, on we're geopolitical other sun note we not through surprise have generating Take the these market economic this as of remain historical that

with period ride stormy offensive a end are environment as this return attractive Finally, comfortable and to management boat current we're preferred of history. more Capital will both the we in the This common we advantage Board out The stance these the Both truly stock in you. and transitional Dynex period adjust flexibility transitional will have opportunities. take and our to will to evolve. owning posture

can we questions. for So call with operator, open up that the

Operator

[Operator is first Instructions] Doug Suisse. question And Harter from line the of with your Credit

Doug Harter

intermediate at about that guys long-term, how of you that and can you kind are look and you the balance kind leverage As short-term and arrived you to go at the that talked through you Xx of currently?

Byron Boston

I Hey, over hear it quite Doug, didn't Say that. again.

Doug Harter

balance look of kind guys Sure. current the how the level? attractive of talk leverage Kind of about the long-term, to short-term to you intermediate arrived as you kind you just can versus at

Smriti Popenoe

Yes. Doug. Hi, Good morning. Yes.

We're the mortgage the on So they I wider than things, the tighter it's in think are I catalysts two we’ve the said call, for as market. probability things level to the near-term. spreads the right? thing. go the could catalysts very fewer to things -- in are the to for being And go here, a relative today think of first of technicals go. where of respectful function where The That's they we

that withstand believe And to the that's in the further really appropriate as leverage reflects months. substantial So the Xx we the widening spreads. portfolio position few next of navigate we ability

most your the We to could into spreads we our be want go that in and leverage do do the account, get want come. So with take mentioned, does our the you that? when in a when can to posture way much make we want much how we're know, ability to spreads going to offensive things of hampering we're where positioned that? then opportunities. that we positioned sure where today, as storm not the I that you near-term, finally, is that How opportunity And liquidity into actually in sometimes take capital have

Doug Harter

look, guess, feel I you opportunity of leverage would think when that of are out? you that some those where taking when kind -- comfortable do to you comes, starting catalysts where play think And

Smriti Popenoe

we that's dry presents look, and to answer which we made right? context we the July, up, can but think opportunity X it of up? question take broader up? That's right? context of the lot we'll in leverage when much are of between itself, our market we what So it's is, deck, going what turns from people us are what X tell the have return And depends a And it that advantage you, that leverage what deploy us think can $XX,XXX in the be It's to now, our and incremental we'll the Yes, you And have I do of environment. if be we going the actually go others decision. And take prudently. to since will investors saying, slowly that trade-off I tell we positive, How have to depends. time It you we is is risk the of in faced and the going will always pressure to take that right like and leverage macro And been I when do somewhere you've do you on it. time. going and hope right the to can now believe powder. said it at I this seen investors, doing tell is, and again asking

Byron Boston

I -- thing thing on this, one other other one add me mean Doug. let Yes,

how broad value quarter. Smriti the tell our swung during book heard You've you

higher we're impact the potentially that starts account and changes, have to a value to here material the sitting sit. how be. of portfolio. where we're where book the That's leverage materially terms that’s world at so, take a to looking than managing going happens in be We'll And on into going to and we're change, environment we

sitting terms not a we're in So time, here of can't. thinking moment you in static

pretty X, immediately, You this can really so value And right? the at that X high, we were August, because see volatility take there that of potentially. the to about book it's up with your excellent that's now. goes up turns a in marketplace leverage solidly book note book value how down much end fascinating see value the But

in if about till to get going very So and adjustments to where there headed is thinking investments make approach, headed XX as of we top-down they tighter, basis basis we're leverage not down. XX points to that -- think important are wait it. terms spreads the We're appropriate points

to that you give just some clarity. more to So there in add little piece

Operator

next Bose with line KBW. from ahead. George the Please of go Your questions

Bose George

sticking or Hey, risk you concern want the morning. there's of leverage the removes are your how here, upside of the of noted sort some increased. the leverage X.X spreads when is and there your you to? has willing leverage, level the might where backdrop, at Back the with just there the Actually -- like that let mark-to-market are is tighten. of of now. delever, to further. everyone. willing to that Good leverage obviously that kind some around you wider run kind like is what's range mark-to-market that guess which you And clearly of up to theme is spreads I mark-to-market envelope And spreads is -- if widen With because

about thinking Thanks. So that? you're just how of kind

Smriti Popenoe

Yes.

we Bose, in made the about adjustments that the talk So, portfolio. we did

quarter our disclosed end of Leverage actually As last of capital end. the week, was down that leverage during to total is we my X.X from times comments.

have actually spread portfolio believe further the not on the I And -- is we the to right further what like write -- a entire to that's we're we XXXX for right? capital taken point the basically widening. take opportunity requires is believe the But of up of peak So and to think in than enough of day-to-day capital, ride almost like moment-to-moment it a through widening is with how let coming deleveraging, enough that spread market still beyond. again, here And, out to the liquidity to operating end. -- this it, into to now, environment If high terms more going see how here is rough withstand type be is a year as decision. that, decision do and of a at we're we liquidity you what and going approach would we

we function is So to evolving. that. the that environment it of choose liquidity to Whether not actually will to position market or do allow withstand where we a able be actually the see

in outstanding. Now, for going term, the You've improve are environment the got intermediate the returns call, saying that we raw to reasons right? is the all outlined are in really I

that's who ultimately, are what back. want bonds all going unfortunately are to the we selling You've over, got when in supply they're market down. own. is And people And this them this coming all selling

going So that. nice have at point, to that it's to be

say you giving it's in delicate position want get up eventually upside got of -- but that to of to So be line a a when walking to the you to want it lot there. comes, don't you

to make cognizant the And involved it intact. You we're with risks that. of there very, got very

to and that's And this. I how navigating And haven't we We've to want leverage float that made part think so Byron, you we're of allowed add. our up. adjustment

Byron Boston

from something Doug. and Yes, to add let me this, Bose last the two questions,

-- increased easily This balance set we on are leverage sheet around we about this XX have the ride, when sheet. went on because we had have of our the making to come adjustments or not have the in points in liquidity up we year. basis say XX up liquidity, credit As and here that worry is balance margin from we moving plenty We’d calls liquidity been very and actually in. managing to portfolio, such because

teams market around have of I'm all issue, look volatility. liquidity. don't the have liquidity, credit because Smriti, is We scrambling. listening isn’t line your type you liquidity. their they'll leverage this leverage, world to it will as stress the And way saying you in of probably the operation, in Now, that of question they at will the pressure be up investment in they But investment in feel don't that terms with because team, will do enough have as scramble leverage meet up and internal moving we those went that to their because companies if easy

posture And to You all as years have surprising meeting tactical we decisions, to do see we to taking. can around, have are decisions environment. with very with we make moves with risk leverage it to the real liquidity enough anything have but made the It do the won't over will is that, something key liquidity. may a the deal

type didn't They example was two Your March calls. storm. the of or year, of best within We in is And fine. same They by had that internal exactly adjusted about three the We end the XXXX. the times margin way. portfolio worry liquidity. operated major everything of any

benchmark, a made how and them in need in in them made go look you. you back XXXX before how decisions we XXXX. to Back at we how look and Look if So we XXXX. made XXXX

Bose George

markets. Thanks, Great. one are haircuts, guys. actually changes there, helpful. Any comment on volatility seeing on? And the Okay. just to anything That's funding you then

Smriti Popenoe

The market no. been very repo is The answer to has very, Agency RMBS stable. that

in We zero market a issues. haircut have orderly The very functioning had is manner.

So no issues there.

Operator

question Your next with from the is Please of Cranston Trevor JMP ahead. go Securities. line

Trevor Cranston

led particularly are in have are on to kind where asset end the in of to question some changes the quarter. Hey, composition guys of go change that at you at, the you sensitivities of change thanks. what the the made A have showing material rate portfolio that you versus the into October and as exposures? you detail Can hedge on

Smriti Popenoe

Yes. Right.

So a a second, on. two that combination that, sensitivity. a put spread in combination of of we reduction It's big And things. a hedges the of it's portion credit

the hedges. as So what in do give we doing increase adjustments, in time. those those we've making adjustments to make real And some are reduction making we of detail and more we Trevor, we on what those commit will moves and were exactly over this complete these assets, around call actually adjustments of in time, sort is, level the what level some of is,

we basis say, to spread, relates sensitivity, down number two on that's it interest to versus rate then credit suffice that's sensitivity it as as sensitivity book. percentage And those substantially relates demonstrate one, down really slides but some, to interest right, quarter a the end. So the less what is, are to to rate in in trying than

Trevor Cranston

the And the on was then composition question portfolio. the of coupon

September in Given much the rates portfolio moved, have obviously, are as how trading show anyways, the meaningful discounts. coupons of all XXth at

like on about, as are deploying Or guys talk guys at can more deploying coupons? you're On you of you kind still securities? if if current looking discount focused into the you margin are capital,

Smriti Popenoe

question. that few thing coupons that's everything generally the duration possible. you have with amazing know, that to of about to that that’s below know instruments trying coupons we great estimate are, well and right is, to $XX hedgeable you've extended. as us say, principles have own going is, try years and you're the trading the that those or as for I owned the now continue you The duration one follow to of most a things price, are fully seen now that want And the I'm And probably to that a

not volatile really in is hard to position the this And duration rate estimate. that's of have to a so nice environment. And interest those

we this So through manner in I'm get until comfortable positioning very period. us transitional that

we as current well So as the coupon. risk and things, transition, go in lower evaluating evaluating of the we're current There's associated reward kinds that. coupons, all through Now, as the we coupon right? are yes,

So on there'll return. trade-off involved. and current be I'm what's But there's put is a be incremental offer getting risk for And of risk that I'm yes, type balance going that's place taking? risk that the a the the always that different sheet. coupons return time more And the to to a

We haven't appropriate that's exactly offensive of is the moment. we're process yet. the that going thought that like at But type felt we through haven't

Operator

next of Jason line question Stewart Trading. the is Jones from Your with

Jason Stewart

lower leverage And ask to sort of the thinking environment. in are wanted you to about guys cost that? operate how I about defensive,

Byron Boston

say just mean, of cost to operate, you the running When I overall Jason, the cost business? the

Jason Stewart

Correct.

Byron Boston

of this increased same -- having on the Our in cost hasn't volatility type of where was] cost, [that’s just cost we're basically levels time. are the our in terms gone it market

materially of you a running kind of from is to just on environment, our terms go level and but normal focused Our of cost the of work much personal we're in in XX/X type that higher terms the a days business. time markets, focus the level of how time

putting into one, We and three, our two, have and in right money long-term. And short-term, medium the a shape of perspective. years, amount are ensure XX five long-term we're we that to great business

different to from started of of exact world year environment. and will type major surprises now, complex. two from really terms a and some to probable highly believing the So to manage more us years through technology changes furthermore other back that the platform areas we're changes making make our in us has shape this market these of environment, technology market better now proved are that put beneficial, We to in types become extremely

in any of And so of business. have doing this doesn't overall terms impact environment cost

the generating to and Dynex especially still management on world long-term this. focus such in a Capital, needs people, exactly team sustainable We that is a over technology organization like asset Our a the as long-term. build the vehicle same. cash We're the solid believe process investing

hope some I gives that you So insight.

Jason Stewart

environment? FHFA, It's great. other perfect. One, come any you of wanted two this you I expected That that to is think out ask changes given quick questions. guys

Smriti Popenoe

potentially be on November Great box, looking that factors. question. open big potential issue. elections. signaling evolve this to X%. two Yes, that box. they mean, We're so looking I over something is year the at towards credit see up there's Nothing can think in next years. of That's to two up up size as this the might is we rates as come We're movement credit mortgage that affordability for are picture the which news something the been going up here the right, loan Those at environment that in will we're where here the Obviously, at the I focused opening how change towards are end. that far

now, we terms major in of here. any see is radar I right the think nothing on So, can as as far changes

Byron Boston

Byron I'm other This it out which in you comment. going one thing. make is, comment, so have asked just to I the is public, a

can agent, ensuring XXXX a did a But is asset don't and portfolio have to the the ludicrous role and As phenomenal trade before. grow to it play to temporary actually could March stabilizing market has be agencies stabilizing could lot a organizations they United been is security in easier. over minor our our played like States. the and mortgage Mae would few anything and traded Fannie a sitting for these have these the FHFA I market. smoothly. this Agency they smoothly for government Mac make Freddie a things markets when would last have country, a but that The have They They there, minor like of months. they role,

bring could role a you that government I big talk played they role So regulators, they need Mac. can worked don't play the at I up. to know They to portfolio issue play. And our that. before. FHFA market can in a will the or terms would of that trades. regulators, But day, agent I how hope play Agency whoever they mortgage stabilizing one Freddie else, understand

Jason Stewart

mean, guys you at buybacks are opportunities How common I preferred versus my right they present or on me. in opportunities? pretty looking both good now. for one view Last investment

Smriti Popenoe

Jason. not XX%, your right to investment returns sense are your are XX% buybacks when the -- to relative That's at capital returns term Long opportunities now. of case makes inverted. Marginal cost

capital. we're is And so, environment again, investment to this in and going an to which hold deploy want

Operator

ahead. Your next line Eric of BTIG. the Hagan question go is from with Please

Eric Hagan

thanks. Hey, Good morning.

any the there of paydown And within couple stack you and right the on liquidity about TBAs liquidity, you stack across you a securities the light Thanks. for on Can comment side, along Just with and borrowing relative repo curve? for see term more and funding think mix how differential value the pools? on just guys is in repo that now? then coupon that in longer yield with value the the how you managing

Smriti Popenoe

the -- get across Dynex quarter here your think at to answer how we've it a Eric. Yes, and can forth. and We that so is term, I second something I'll of question well borrow very you we be right, used flexibly and continues of first, ends sort mainstay on that so idea through and

for term year that we've a So, the currently piece. not but there It there big end. the premium term is a end and actually premium a is markets turn, think to as big as charged year premiums in is being through that's the past that I seen is in go

for basis with or the going Fed XX other that when of The December XX? you're move with or to hike November discovery hike respect thing XX make repo on point So respect lot magnitude market uncertainty price move and in that's a and beyond of point seeing hikes. amounts the there's substantial their is rate of to the that will just basis

the just or that B, being term has availability financing. out us financing; to our of -- of but able from So prevented A, none

term that. So not We've Financing are like seen or to we with available. out. respect is issues to haircuts able any things anything

seeing operate. we expect. actually with problem you to as We rates would not interest a again a are those how term structure respect to But

question regarding pools it. about and relative all your how So value stuff, we're and thinking here's so first really that

to of is and The the have the just more the that principle first much are you fully or hedge. baked price, extended risk risk easier is coupons into management. less they're principle When prepayment

I the and those know coupons can so with of are just is instruments on duration and the instruments function holding what like So lower so saying, that, hedge -- forth. like I able primarily that I'm a futures simply and to is

primary par. So that's below that of driver coupons are owning the

Prepayments Now, because so time, is the higher. the that shift. will It forth. It becomes shift. many so shift will That carry the shift of slower, coupons reasons. over coupons on on will lower in higher and because could

extension more have So more the prepayment of decision you that more is have sort higher in know, more contraction be rate, like And next you there's risk, as you these to convexity. you coupons, made. have risk,

in rates we rates also you more is versus current that of the So that in up, It's been that the you you’re lower duration could Anyone the very profile, when do thought return bought a model wider more we're lower relative going a coupon of period. that's for as coupon. up hedgeability sitting all thought And coupons the higher we're value much through. higher in The difficult us a stabilizer, big very, is trade. them, been set, you've in with at here. see still as but question sort because that's point gone in process still sort of more move, have of a exacerbated a you whatever with spreads to this them, current offer coupons coupons and X.X% transitional this who gone still hedge from in extended X% interest

period, we value, is it? is, the thing that's one discussion, can you the are when it? in time. we period. first. environment, play offense, once way about we more number as how right me relative are we're all transitional the an relative all about we approaching approaching time, thinking the is hedge time The that's the the I I value you course, the where we through -- about, can that to me transitional the hedge Now, this. own fundamentally here are end offense? this then we let have are get the don't thing think you and well, sit not just because thinking thinking of do wrong, It's just of where And still to That's But of how be will can So Because higher do. coupons that's play kind do say, what but I

what's You can't have that's really that's thinking and we that right decision a discussion without risk understanding now. macro the are driving that way

Eric Hagan

any appreciate That's And characterized that good respect XXXX? for and With of I likely return dividend Thank will XXXX guidance you. a comments such, that. hearing I capital on both color. the most suppose be your are to the that? around as we dividend and

Rob Colligan

we thanks, and calculation. look in gains the we ordinary all, at not all at the are be Eric. hedge No, that will income, particular, because saying distribution would that Yes,

are we model and hedge that the taxable gains of the to And be the can financing where understand are provide continue your provide we that in at out not -- are So yes, on to results, -- that can our kind understand we so everyone all. to where are. seat saying we can impact in. transparent. We portfolio, People and to going are and direction color going on we to

Operator

the ahead. of is question Your with Thalmann. Christopher Ladenburg next Please Nolan line from go

Christopher Nolan

fourth Are you into any to continuing the here? quarter shares guys. Hi, issue

Byron Boston

Did are we…? say you

Christopher Nolan

shares? Issuing

Byron Boston

But price is reason. That's for up this, thus of hunker down type Smriti this and I chaotic was of far. sailor. this the of This question. in sailor. you wait appreciate the a CEO -- out the all on sheet who purpose. type boat you’re market, the Tom says, Aken, analogy, this pulled that asking you strong aspects We storm. Chris balance a With chaos very is before

both and on down waiting the balance serious. sheet are a We boat, is you down storm, here. are storm put out. hunker This you In anchor, the sides of

no. the I answer say, is, answer to no, so, couldn't that And short

are we If key twist zone, storm now, of the right storm. leap the the mid-September, here, we that's you is interesting of all sheet. patient a As balance took that one where an other into of on point aspects are in a

and understands the bottom-line we vol. British So trading we with if last treasuries, to whole that, a make you mention. this doing we're of saying, That's situation, boat what Dynex. stuff chaos in storm to with sure ton point like waits about complete the corporate, in about the is, talked hunkers whatever want inflation across in along what situation market or everyone mid-September the chaotic other number, smart have And want mortgages, are coupons The created down out. a globe, you

the to years that's away they plenty storm the we storm you the here, a take storm If built boat the got of have are want for to waiting you wait out because and starting boat message out, ability any say built from with we they liquidity multiple ago.

Operator

are there questions. closing back no the will further remarks. any turn time, Byron this call to now at And I for

Byron Boston

look I transparent. and you you We're really tuned. the to be next of here. company. appreciate we'll Thank much who appreciate chatting in very Stay forward all. you shareholders all being with you, really and hunkered our for Thank you Thank down you we the at are call. We'll questions.

Operator

you XXXX quarter call. earnings participation. your the Dynex for This Capital concludes conference third Thank

disconnect. now may You

Dynex Capital (DX) 24 Oct 222022 Q3 Earnings call transcript