Annaly Capital Management (NLY) 27 Jul 232023 Q2 Earnings call transcript

Good morning, and welcome to the Second Quarter 2023 Earnings Call for Annaly Capital. All participants who may listen only mode -- should you need assistance, please see a conference specialist by pressing star 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press starter than 1 on your telone keypad. Please note this event is being recorded. to Kensil, call Investor like over the now Sean to Relations. would turn -- the conference I Please go ahead.

forward-looking today's Good morning, risks Risk for Any Factors Call Quarter and XXXX made and welcome outlined to Annaly the uncertainties, which section Capital in to in are subject call Second are read Earnings statements certain our forward-looking during the Actual may differ results release most annual statements. encourage to and our We and our recent in and annual events quarterly the you addition in filings. to from earnings SEC these disclaimer filings. quarterly materially Management.

Additionally, update as the this of or revise may disclaim not call only hereof. information date specifically contain do this We information. time-sensitive content of the undertake accurate to that obligation is and conference any

call, in GAAP in section be is call measures supplement, financial may and of to of XXXX the quarter referenced this included found our both reconciliation presentation our we quarter both, found financial Content Presentation non-GAAP today's GAAP under release. present XXXX A measures. investor second and non-GAAP second in website. can our earnings During

that, Adler, Officer note of Wolfe, Chief and is this Participants Executive recorded. this turn Investment Head Rights. call Residential Credit; call Chief I'll of with Please Head the Agency; include Mike Chief Ken Finkelstein, Mortgage Officer; of being morning's Serena Fania, Officer; and Chief David Officer over Financial on to Deputy event and Investment And Head David. , Servicing

leaders results and positioning. our our the review our who and followed earnings joining portfolio for can morning, then by context Sean. landscape the our Q&A. Good for during additional housing second you, business by activity we're quarter, an quarter for quarter, with will Today, during our over begin Serena everyone, call. us macro market, other joined and you thank the I'll overview Thank provide of performance and go also financial

performance. our with Starting

for kept debt year-to-date generated the uncertainty rate hikes, economic and And banking with unchanged, we've return heightened largely We changing spread volatility. value are note, X% the negotiations. to of and and elevated book quarter turbulence regional by path the X% ceiling pleased rate Fed return the caused notwithstanding despite a achieved

Our ability our to X.Xx, outearned to and hedge diversified is leverage through allocation, X.Xx again even reduction past this from volatility position. manage dividend to attributable in our quarter. portfolio capital And this with the responsible leverage we prudent

with consistent banking of Now elevated the U.S. quarters. stress the economy shifting quarter, labor healthy and of gains economic market growth macro footing quarter. onset the the to the environment. has most the Inflation Despite the in on through was solid at recent remained with

begun labor began X.X% However, FOMC hold a for slowdown improvement in the and mark the during demonstrate of year-end beyond And put have on signal seemingly continues in to suggests landing prices. data more core shelter a that to more price-sensitive soft prices inflation, interest lower consumers in forecast has pressure inflation and Fed used inflation downward PCE. longer, particularly should likelihood of the this data will higher in recent slow resilience. increased pronounced the rates to quarter than at June, a car more But

HBA national cycle has up this continue experienced prices Zillow. the now may positive top lead even Recent that the consecutive peak year. X.X%. readings an increases now rate June previously XX price home hit turned momentum according inflation has housing upside home with the market, interest to levels all hike, metro five hike as to expectations months in home hard year-to-date of the experienced areas month-over-month positive, have in national outperform the as the likely prices areas is to Fed With It but and respect reached for yesterday's surprises to we after additional

participants declines projecting to meaningful of price housing with those factors were demand. affordability and translating the reduced expectation elevated Market rates mortgage given low hold

the declined, supported unwilling move, payment. low XX% low or has been Total levels. last given sits trade the activity active and up to transactional XX% very June was with potential market rates by notable as has below Although down mortgage historically are currently existing available-for-sale borrowers at a increased XXXX year inventory inventory from

to portfolio, on turning banking before make sector. to Now the I point the want one

an last overhang the to during the absorbed began market the the regional main the on The manager as transparency the digest This Bank from and the participants. that disposition market implication of parts the need second it that call, was assets stated the of we stress be selling market by of the receiverships. in came During quarter quarter, that private quarter's Signature bank FDIC $XXX helped forefront substantial had assets supply to demand portion process assets billion the and on SBB for money sales already. of created weighed a the

with and occurred. of you look performance once the actually starting portfolio at portfolio, quarter the overall shifting benign the looks the more than again our When which Now that agency. on to surface

reached confluence capital mortgage Accordingly, events This reduced proactively opportunistically our we volatility. the would us resulting agency exposure in the our notional. spreads portfolio us afforded deploy declining beneficial a and quarter roughly led peak previously our in May, widen. by As of across prove discussed, $X with it quarterly amidst businesses shift early uncertainty late spreads in market to their the tactical and to flexibility billion as believe

With most attractive portfolio sentiment higher which into resolved and experienced provide on outperformance respect tighter MBS the nominal banking as modestly the debt risk the we June, In ultimately to rotate the coupons, sector positioning, to spreads spreads. driving recovered, broad-based reemerged continue and ceiling for quarter.

a shifted intermediate X.X%, result, of in and XX-year seasoned disciplined We coupon our as to the remain our convexity also And MBS. coupons through we but reduced managing collateral higher holdings profile portfolio our average on selection. modestly

to addition quarter. current the their prepayment environment. took softer X relative provide billion to to in TBAs profile, of during favorable specified in TBAs And advantage also pools specs We pay-ups over replace incremental carry with the

have On We flattening slight notional the treasuries of basis be curve side, us bias assets, the extreme sensitive remain to negative allows quarter data. but given in in throughout declined value to as the line and a our of diversity opportunistic to our hedges with in position maintained our exceeded stays inversion the fully curve. assets as the yield our highly XXX shifted a balanced market The points [indiscernible] though we rates hedging hedged. the exposure incoming

coupon credit. in residential housing basis and in XX backdrop market Spreads by while a in tightened spreads production of spreads credit curve the tighter, were CRT funds the points the flattened issuance, non-QM quarter, Now strong Benchmark a loan supportive the below the quarter, moving resiliency investment-grade basis to limited and points reflecting net market. cost a driven XX on tightened securitization of declining consumer.

securitization $XXX residential down our of Our portfolio credit with the purchases quarter-over-quarter increasing settled. increased $XXX loans Whole market million in QX remained ended pace in approximately approximately million at to XX% healthy, value, given loan quarter $X.X activity. billion relative

largest XX We deal, billion priced $XXX through of basis million non-QM market volume points e-transactions year-to-date and tighter OBX quarter rally AAA of to brings levels our issuers. non-bank notably, in $X.X since over we second post second than achieve latest bank securitization largest $X assets. our June. aggregate XXXX in the totaling loans beginning of the at taking securitizer And advantage securitized to of This including been overall, end, the Annaly And our recent billion. retained the end the has quarter platform, generating

origination. for momentum securitization mortgage to a continues activity has been gain correspondent by despite challenging our Our supported landscape channel, which

XX% Our our lock XX% weighted demonstrated by accounted FICO of And of inception QX and loan volume LTV we total since well channel $X.X settlements. exhibiting loan average XXX was billion the an pipeline disciplined maintained focus a for our of layered largest as current risk. credit limited of as and the a as

during Now million portfolio finally, quarter four the grew $XXX of MSR, purchase XX% bulk our by packages. through the within we or

holdings to our attractive Our prepayment another and told, in acquiring All quarter The credit were returns. slow rate, in just $X note of flows billion with principal continue deliver delinquencies predictable quality $XXX and below balance. minimal. X portfolio unpaid remained at MSR risk-adjusted of paying value speeds cash stand strategy exhibited market high billion unchanged now and CPR low over

tightening. as we by second MSR bulk despite persist participants trading supply, pricing elevated supply, in has to that WAC the and and in future. prepayment the volumes levels efficiently expect modest of a rates, high firm dynamic improved held market absorbed quarter driven low were spread for valuations And muted strong speeds the foreseeable MSR rise

our to outlook. shifting Now

should expect Agency second XXXX accommodative MBS. of for environment half provide a We the more

of its steeper supply are lower decline the an will likely MBS mortgages, on money cycle with supply volatility lead as and should persist investors banks of primary making a to demand While more sales the potentially the from spread to buyers Fed curve, nearing option-adjusted end be and and completed, net likely to is challenges FDIC to basis. hiking managers attractive

But note though is we employing said, that wider I healthy historical wider benefit room technical yield agency will is that expect spreads do settling stay considerations, here. earn relative excessive leverage. there And spreads given tightening averages that at a without the for to to from would still of we levels expect

residential we And lock resi, channel further to to now expansion $XXX these within current end our benefit the credit to and onboarded. correspondent the we As have these approximately we of In businesses, pipeline has further and as penetrate counterparties expanded market. And optimistic it strategies anticipate strong credit we look XXX we're set volume responsibly. quarter opportunity MSR, relates scale we'll from been grow our with the post expect of million. about as

for to have top relationships growth including to leverage our new as we In well partnerships, ample opportunistic MSR, and positioned servicer, bulk as established flow continue and as platform. we're add and well capacity subservicing further an XX

financials. it that, to with now discuss the over I'll hand Serena to And

period will metrics, release Thank X-month you, quarters, key exclude ended PAA. and and prior I brief while earnings metrics, our the related EAD June our highlights GAAP which and XXXX. my David. on earnings with comments performance non-GAAP non-GAAP Today, that Consistent quarter discloses provide for focus financial will XX,

QX, earnings play are discussed challenging we economic and themes the return market. our of continued out first quarter considering and of Many proud strong we in the the to in

positive of for for book from our per share second value dividend quarter QX $X.XX, months a X.X% of return David mentioned And generated X we for Our approximately as with the earlier, at the $XX.XX. year. relatively unchanged prior the X% the and first was of economic quarter quarter

the while in rise to Repo portfolio roughly quarter, the approximately impacted available expense, $X.XX $X.XX for for in prior on MSR the the earnings our by our drove quarter increase in in quarter, of mitigate resulting of rates EAB rates. portfolio of consistent with second share per $X.XX, drag agency albeit losses We for continues generated the for was adversely Higher $X.XX swap our distribution portfolio, book the quarter. gains hedging in modest of having a and our

higher. XXX PAA ex XX yields higher compared quarter-over-quarter as decrease points average up basis to of rate points points prior points Average the rise for in at XXX X.X% X.XX% quarter our with basis XXX quarter, coupon our are factors basis of from in the was basis EAD the XX continue QX. QX. also cost XX% were than coupons of by prior basis impacted portfolio XX points quarter. And NIM The a this funds Net and that total continued QX. impacted the the basis and X.XX% repo repo XX basis interest to the the points versus points point for illustrated quarter, in rising in agency with spread in to XX PAA, generating quarter basis rates rotate NIM we declined for portfolio quarter, at in The X.XX% ex

impact of points and basis with in funds an receive our X mentioned, receive of compared a swap average QX. rate the net improved the cost swaps ended basis due a in the net XXX to previously points notional, rate As of portfolio on points to by basis increase quarter XXX

Funding details to turning financing. Now remain ample markets on and liquid.

see our and security portfolios. We agency continue nonagency strong demand for funding for to

mainly and of XX from we is call. days down quarters, longer-term and our competitive with side, existing of lenders dedicated engage facilities enhance for the continue new credit as with in repo strategy QX, to reported trades consistent average credit and during appetite the warehouse has very look been The roll due to our at businesses our were Our to XX, our warehouse repo by also QX terms. robust days referenced on down counterparties QX prior we earnings weighted we

unused QX, warehouse characteristics portfolio, and MSR leaves we of these for to $X.X can of had a have the we businesses. credit liquidity facilities, us of growth comfortable position further liquidity. and very said, as of capacity billion in assets significant That unpledged Given that our utilize end unlock resi available being MSR across the we our which financing

prior billion cash compared leverage quarter. purchases improved assets in quarter. profile $X.X billion QX, came $XXX liquidity quarter Our the and increase MBS from to the to including for $X sheet assets assets of primarily $X.X with compared unencumbered the billion million during The Agency unencumbered approximately securities for unencumbered of and MSR lower on-balance in

prepared remarks, open the operator. line our will for Thank questions. concludes That now and we you,

[Operator Instructions].

Our Bose from first comes question George.

First, level I that XX.X% to that the the just slide about it groups. didn't as to range. quarter, see last XX.X% last you same I different ask blended kind I of for the ROEs. a returns had quarter, showed that that was return wanted just as mean

Sure.

on credit, can gets low to leverage OBX, XX%. MSR BBBs Agency, unlevered to similar. Residential So XX%, gets then XX%, around mid-teens I'll with turn through of and internal to securitization call upper run mid- through just It's to the quickly. teens. the down retaining leverage with you you real it you

So still healthy.

Okay. an Great. update And the quarter-to-date? then give value. book just Can us you on just

were of up X% We last Sure. night. as

Crispin Love next comes question Our from

don't and down optimistic on leverage about your You based third I just the in the second XXXX, positioned think since but talk just you to in leverage you're the Can on quarter seen you're comments, brought we've environment. how quarter? levels.

to So MBS agency begun curious in leverage after if quarter? and you've second add the Agency early decreasing bring higher

We beginning ended more. think, And A bit want little of we this Xx, We leverage that we is add say, at did amount Xx. fair quarter sure. mentioned, at at I of million to Xx. yes, Xx, levels, Sure, capital MSR, allocation. I as to XXXX, troughed the a I committed $XXX

of also in leverage is profile X.XXx pipeline active have the less So which that then about we does decrease. given of account a the And MSR, for an resi, levered. turn

today, add a we sit mortgages the begin little of did we As to bit quarter.

turns So we're leverage. right of X at around

really we we're like at. And where

If liquidity. capacity but our to our have then leverage ample isn't widen, opportunity have But to up, in able And generate go leverage they We there materially look with need to with the with at if we shocks, mortgages, do current lower if improvement ample returns an liquidity. book will our organically value add you add. different is we we're spread leverage.

XX.X% appreciation basis XX.X% -- point spread we're tightening, I for last think XX we quarter. a versus around

with sit lot able right given we're So more a we to and really do we here. like duration longer where spread less,

That's just helpful. question And one other then me. for

do to for the them banks in scenario then buyers managers vocal been But of there potentially money or meaningfully? kind again? quarter the agency banks become about or Just expect to a the been attractiveness MBS. And the about tell? year have where are have Agency thinking early and or to Is positive you'd tighten later of market too soon Agency of reenter to you so fixed next, need think entering you income flows last in how spreads

question, holdings selling, point, in could And too the by to that posture, we'll the reemerging we guess decline from We We still the looks early don't bank banks but end like see runoff expect in year? active not. tell. in the think in $XX is portfolios. to what beginning of MBS XXXX, it's answer at about you outlook the another billion Our will be this see there'll see but fence just to them year. So do estimate bank be involved

postured. really really And Look, are banks on mortgages money depends we in it for terms do of need how to managers tighten?

end real are the certainly income. cycle are and elevated, to with does rates hiking Yields respect that are at We optimism attractive. near fixed the of about Fed or bring

see MBS that into provide In is which will managers, will you coming assets And amongst so our Agency the more cheapest money are money in support. income. expectation fixed

overweights addition basis. So The passage beneficial elevated. Fed note certainly significant a that should in and coming the risk events is cycle, the money even see ball end managers, on that point to ball we hiking is part which the And and in, very will to relatively of in decline will agency new agency support to of money still basis. hope for lead the be to of the another

Eric comes next Our from BTIG. question from Hagen

point, And a widen I more feel rate see maybe likely this mean, bank much follow-up separately, somewhat spreads at tighten Maybe interest like on environment. or do then are mean, you how into rates, an now? spread to the do right spreads you rally? between MBS deposit I sensitivity and

Yes.

pre-COVID tighten, should spread value. look do market past to materially if spreads mortgage fair symmetry explained. definitely Factors but you given where the cost like in We CV, of cycles. XX at agency a that. tighten. wider that we is likely spreads more like it compare And around should is We're and cycle, more higher, of the terms loan volatility look option refinancing materially, in to feel than and we're that. efficient do were above roughly come think given So widen remain like factors higher, We where lot are is in. not today's balances at we're versus But elevated, is

is banks lastly, the Fed environment mortgages engaged in little time. just other more last picture QX, then was a and And factors. relative bit negative to Even supply for the given this the

in But be we ball some that's should in they some that should is to about the them spread If value. is So in to tightening get where determining think I basis event then XX decline spikes, widening. mentioned will spreads to our going view tighten. we should be goes. tighten horizon there a the to We ball, be somewhat. points unforeseen factors? get And fair very volatility Crispin on there's beneficial, As expect what would

elevated the it. money powder of money That lot income is fixed funds And investments A been in market the funds. investment I'd focus dry investments. of in has money for fixed potentially Look, on characterize bank and or mortgages, market just terms other income -- balances deposits here's way versus

money out and funds market to And so support more money mortgages. into of looking to ultimately longer-term we're for come income vehicles fixed

in Right reserves now, reserves the And see and of terms as are around you're go bank down, $X.XX going deposits liquidity. bank to Fed withdraws sitting deposits, trillion.

decline. and We to deposits. year, and end the what's mentioned of as I expect don't bank be that the again, to XX%, it be around banks By probably buyers currently It's that's And going XX% drive will expect XX%, mortgages. of GDP. we previously, to

in appreciate that. mean, commentary. That's light with the I support MSR, tolerance directly? there the think you the to MSR is I Right. on encumber leverage you market against for the can supply mean portfolio? the would look get in agency you ever of and Or big that helpful the do Maybe MSR to portfolio borrow MSR? idea how I to the for MSR leverage the basically hitting encumber the

have hedged X.X we allocation. should our turn of liquidity a we Currently, levered Well, variability the flow benign The is look it at about state MSR or lot levered. be our optionality cash for with X as way MSR and at WACC a is low portfolio capital given it about turns. steady

is some turn the we that in So financing, of over lifting the of it agency of theoretically, out, for heavy year doing trajectory have the then capacity to to of but agency continue portfolio, me the And Ken. doing funding supply grow terms and portfolio and let play how that. we ample the might in warehouse is some

quarter, the been next don't steady exception of year the the we of at year. due quarters. very supply mean of GSE the the the $XXX we quarter I sheet Yes. for constraints that that transaction with at each roughly few slows sellers, to fourth When time see balance down GSE look of of the stopping MSR the each at has when volume supply billion

sort assets Our coming be buy. exact we'd relationships encouraging of are there'll that of more like to very the

Our next Securities. question Cranston from Trevor comes JMP from

sort of hike about you guys of -- we more you I curve it seems cycle landing that you Can could sort of had of at may this elaborate think be a and a economy. how the have shape curve And quarter, a you throughout to soft at moved balanced maintained the you I say forward, the end we bit David, Fed heard positioning. point? flattening curve like the rate are now a the on little with yield also evolving going the it thinking given bias

Trevor. Sure,

we the that So for We on correct. inverted. got here is extremely end out flattener a much when of it towards balanced the have the did of the quarter and curve quarter,

really market terms important In of over roughly note the expect steepening the the XX some rallying now, next X-year to has by points. year in do the expectations, that note basis priced we it's our right is curve, way the but

lot and a rates, advantageous there's you to rates, And those lower it of steepener trade. in it's So pricing example not meet for if occur. a doesn't put then an

a so our do -- bias, the the the And we But like spike the we good Historically, of a feel feel risk-on we ball play terms the long reasonably in given priced. do absence mortgages. soft landing, likelihood to normalizing trade like in best we're MBS steepens, well about we rates, type steepener, volatility a of given of the is where curve fact that levered on steepening in is for rates through that outlook very Agency market have agency. from way when a event,

example, the treasury. is at between priced X.X% If curve look for out, X the entire forwards, X% years in you to

quite particularly think given come considerably we the years. more X.X% likely attractive, XX look will on the And yields outcomes is cycle. now be according a at way now, we've inflation at scenario. data are known There We horizon, just real it disinflationary down and fewer the are less seen. market yields of risks narrowed has the likely that's we from in driven out normalization far at given still range where to Runaway market. standpoint. we're by The rates the do expect to right So the the rates of

elevated. feels pretty So stay market also But should the yields good.

stay or back benefit here. is as of go be for We Monetary in the rates rates, did going a should not just not experience going post-crisis we priced policy to this bout. and to inflation we active were to real they're 'XX period. where fairly think right positive, XXXX, And and just we're

comes Our Suisse. Doug next from question Harter Credit from

the about of market? of securitization? kind balance residential waiting you you're sheet and And the while and how willingness for still have securitizations remain credit improved, you're and spreads viewing Can mentioned market you viewing loans while kind spreads talk volatile that to how

Doug. as my I there's agency quarters Sure, also better good resi had Look, reason, mentioned market. stands residential housing expectations. well, done has our in comments, credit, performance And has supply here. And of set in the prepared reasonably than to it very a a scarcity of unlike

So have Mike why And to jump here. can spreads we understand in tightened. elaborate,

Yes. Thanks, Doug.

securitization, over terms to XXXs. at just XXXs, a a a mid an that's curve, IRR. high funds $X.XX in continue deal high think financing it, economics at of the today. market I that The warehouse, on call deal actually of at of it be look at is, funds warehouse cost our XX% to that When call blended to advance we we to closing cost value relative We expect is to programmatic. priced our

So the of inside ability certainly something debt that to that think is warehouse makes sense. we term out

this has $XX of within lagged, say the seen, $XX we'll you've as gross total non-agency So market. issuance billion issuance year billion,

of a absent to half think in risk technical positive second should that tighten, weakness off. issuers tailwind spreads sort any for of in ourselves or continuing like do we be the So macro terms

today, deal XX the So we transacted if about ago. week quarter-over-quarter. tighter I a levels And a we points be we inside with would basis just out we that were think came

performance. in of at refinanceability to looking from that today? in the kind when terms you're are you're And guess and buy you buying impacted counterparties, counterparties past, Great. refinanceability about the I thinking from greatly Ken, who kind of -- of MSR how

important few to a for the are perspectives. from Thanks Counterparties really question. us

prepayment we're the in positioning to our share of as being competitor counterparties. the not other can speeds, willing in where of recapture are price participants and with market. not way the we because a often kind engage in able in capture our we a to performance counterparties, value specific And On relationships with very we

So extremely competing then again, participant we're And mortgage we're them. the with an we're for unique with industry. partnering them, not

in value So recapture the we or price in recapture. share the either to

from think our I very So peers. it's different

We Credit more is the big out One with. front. that we and things transact set point. durable in there's that event counterparties buybacks want that Yes. like on limit the also of that. the We consideration counterparties just a horizon,

from Our next Shane question comes JPM. from Rick

First question. big of this a is picture of all, sort more

the observation this it's with into the you spreads to about this value. that really do tightening. change returns ways? ultimately, different point, I you made or a higher priced care? less manage eventually allows at But book in risk secular leverage You And generate mean, is

yield. to have will don't, perfectly right, for It's reinvest at asset, think exactly not generate but you're the because we preference Rick. the the own Yes, We runoff to the our us. fine wider attractiveness spreads they assets. when of We'll tighten. We will they of for extent that's to continue And yields.

in necessarily that to we spreads not continue do And leverage. spreads preference and our sit low to generating generate at perfect for we're a with return tighten. it's wider So world, the

it. we how at that's So look

with had moving right slight slight the made And premiums, up other question the seeing then we're it. Got Xs now with this, Serena discounts. in And X.X coupon. comment is about

move Given does you And it rates, risk ultimate premium sense to make are a don't to how than if -- asymmetry the more interest are start you take in sensitive little you? to expected? just to rates the quickly so bit stack, play that lower

Yes. chime in We'll have here. Serena

like lot Rick, can X.X find high-quality a not we we There's coupons, particularly when production. absolutely You're X of specs. is right. and premium

where that's are X.Xs Xs forwards are X.X it's along rallied. slowly, off quickly. that take we the out that's that closer building are I the X portfolio par, where above basis mostly and very in below given and slightly or Xs., like where and And pricing we look forward where that we like we specs, high-quality can a So is and the along in if PBH and add forwards basis the are think to X.X par and you paper

managers, lower when index they lot pay from. still think a We still generally try shied lower have good they flows the and to will look at they because in of the will index, match have we very coupons. money So has coupons, -- away demand see

are So the for them technicals pretty strong.

While themselves the don't on particularly attractive the stack. cash flows look

The So where we is coupons. buy the we specialized belly that higher paper. revise coupons specialized TBH coupon post can high-quality

comes Jones Erter Trading. next Matthew Our from question from

resolution. pretty mortgage kind debt provide the is the during mentioned reflective core the you significantly tightened earnings dividend an value and hikes? Could expand why is quarter quarter-over-quarter ceiling of after of explanation You if the down book spreads

months quarter. did the widen debt Sure. the Mortgages considerably very did after ceiling but they episode, materially first of tighten the X pretty for

balance, we marginally were So tighter. on

I little basis, gap. X go and basis and positive X duration carry think maybe And hedging a also, on of bit tight, a OAS points do that it. to with as cost not quite nominal a there's along we tighter then

So obviously can money. as the off often case, sold duration somewhat is the cost market in

experienced, funds quarter the So year-end at quarter points at the of significant XXs. yield say, I'll a given X.X%. and basis That's fact we to the XX% flattened on beginning the move. XX to that went volatility X the Fed futures Xs The from curve

cycle and sector we've We're whole. observation volatility end of that think lot I I quarter REITs. reporting X way with to I'll actually the end quarter here, the And see occurred, it then about through quite particularly the a you managed as another a well, has So much make think more from agency X.

has matter actually now rate the been very of risk hiking quite cycle. well. And light and very the think. most reasonably in of responsible interest Fed have I just managed well, The the we're folks sector I mentioned fact the that at on end of quarter, leverage is, And the volatility likely did the

lot And more so the a looks outlook positive.

right investor and the community optimistic shareholders. where And for sector strong now so think and analyst to sits returns the the ability should quite generate about be I

Awesome. mentioned have shifting guys get credit kind And that of Previously, to surrounding allocation. MSR That's and then want to you to And helpful to gears, on Is color there. is XX% still capital resi timing that? agency what the then XX%. expectation? the I the side, XX%

and still over of is So the the the dependent timing that expectation on assets. valuation longer is term, the

attractive, we sector do the So agency looks well. and right certainly expect now, to

things commitments past as given when that's we'll in allocation as fairly forward to an are next So MSR. settling. of this that years, gravitate number well you'll we're into resi But both, in going remain the quarter increase to In amount MSR, valued, objective the made we've of see overweight. over continue are the further capital

is up. the that so very residential And go And pipeline again, see healthy. you'll

we're grow we'll responsibly deliberately. so hopeful that And and that

next from comes from Our Abraham Vilas question UBS.

Just that anything on trends hedge quarters? the see over in ratio, particularly you active yourself quarter, the the hedging And on think do how you coming quarter implementing new flat just over being there? do

question, Good Yes. Vilas.

actually. active the passive in components. start first, the with component the there's component passive I'll So

runoff only look just of portfolio, you run by X% next the off, the of year-end, swaps about our will months. XX% or at If over the X thereabouts

make that front runoff. going determination we'll to let policy, little where and given there's the to we're that a those of be likely. hedges the want is we in do passive monetary run the So quite be yield to is with end And curve? bit some sitting respect longer And off

or operation, half as as market do it. risk, at in will exposure change But and taking meaningful actual else in interest XXX%. intervene with either we'll curve, well little the All yield adding or a above think be now, go or rate both relates it views our as ratio absolutely flattener, a is reflect a sitting we're bit And duration duration absolutely ratio would year equal, we exposure. we're rates fairly down. hedge of it right curve hedge that of and there to right our whether steeper the duration a if Also, we balanced

That's conference it. sheet still question occurring. be there press Fed the a but Got balance suggested helpful. on And Powell Okay. at that bigger runoff you on cut, yesterday. where scenario maybe could see the rate picture a policy Chair just

react? your now? Just that? thoughts there. to hear that kind Just the to spreads Is what How would other market around any of are thoughts right market parts your of the in or priced curious

Sure.

start rates to balance like down come still be neutral. would sheet And occur, normalizing a the balance their cutting will actually to they that something but They landing. scenario inflation consider I So likely is need they they're that where both off while scenario to down get can at. the back getting disinflationary likely levels what to expectations, they operate to the rates, achieve a tools, policy hard objective. still they're next to below year. that it's counterintuitive, If want as that know running sheet opposed does is

next still or look or the $X.X of they what mortgages, to may need we they need and now, trillion of you later, quite think year warranted if treasuries, Right elevated. at to be sheet be that think balance growing It ease middle timing is ease may trillion that. $X could their to it again. and advance in be when to runoff start they runoff stop of the or

want the as can do things add you system. at runoff the recessionary so economy in you'd to once, So long help liquidity which case driven balance and the cuts, not to stop to by both sheet it's

Now not they the is being actually expect running the share, stop we MBS of statement end to QT, And it's yesterday, last MBS. terms much that of iteration Agency off in good making when for that did relatively the reason QT. like

they then MBS rates and stop well Agency off time the sheet or be QT. reinvested letting start run the treasuries treasuries they are expect to reducing run If runoff, into as cutting still letting end that after they and the they're rates. beyond also off We balance they

cuts basis is that so could occurred trade have And when postponed disinflationary effectively. that occur

the that it's at generally, So for basis. better the Does margin help?

Yes, it helps.

George. next Our from comes question Bose

is you remind had had portfolio. there? the portfolio? Can just is you that small an exposure that about a just CMBS just question what opportunistic I And quick me the --

that's exposure the no any go have don't quarter, forward. of core a think longer that closed asset to characterization it. a CMBX. was CMBX have we think on did it's so correct actually the We on I We Yes, a position

own think we're And CLO. own you In expect terms be that lever. of efficiently I now, we spreads. where AAA asset upon $XXX around, can million. at CRE We an It's dependent we that opportunistic to

XX% like multifamily, I Yes, believe.

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

joining everybody, thank has your summer. today. appreciate a Scott, you, us and for We you, good Thank participation. everybody end And of very hope I

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

disconnect. now may You