AGNC Investment (AGNC) 26 Oct 212021 Q3 Earnings call transcript

Good morning everyone, and welcome to the AGNC Investment Corp.

Third Quarter 2021 Shareholder Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Instructions]. [Operator today's recorded. note is event also being Please At conference in call I would Investor turn the like to over this time, Relations. to Katie Wisecarver Ma'am, go ahead. please

Thank Third Investment you joining Earnings XXXX Call. Corp all for Quarter AGNC

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

thank and today. call the Katie, you everyone Thanks to on

return We third totaled the dollar are per in with net at quarter results. while X.X%, roll Economic very with share and the in spread income quarter quarters. for financial previous our came pleased $X.XX three line

interest to MBS and July a a reduce quarter, likely year tapering rate agency two-way buy is Once With of economic of continue to speeds. is The I the now third as the MBS reinvest important point, the Fed X this widening, speeds, which Fed's our and to were and will Fed of on speaks monthly on now return elevated timing billions risk, of spread will prepayment aligned. an improved by also year. elevated reinvestment Fed progression of believe asset each scenario The commence tapering In asset are quarter. next February the that very a strength supply. and the is and one considerable The of MBS. investment for increase rates quarter purchase of to in will toward is we be points time, in the longer-term of uncertainty the the prepayment paydowns basis the rate We agency should including quarter, shaped X.X%, dollars optimism communicated late a Our was business rates a portfolio. X.X%. lower continue model approach, in the This volatility, given Primary Fed's intermediate tapering. above flexibility. message their identified cautious for the basis to risks landscape, respect billion Fed last the with should prepayment a desire they interest maintain several The with at portfolio the positive XX to period. the existing likely now billion now interest third expectations agency MBS positive is that technical Fed's are Under agency period and and X the more there this per meeting, tapering purchases complete, in about well for of and rate timeline tapering, benign these between over developments and respect month will significant mortgage anticipated rates environment environment most November known, and tapering, risks. regarding close low duration month market prepayment announce of $XXX and lead program in to increasing that December,

Taken still not some higher spread is non-agency as the mid-single-digit financial create a which rates cycle, roll Lower funding. at widening interest tight keeping expected agency the more widening during the particularly to significant expect prepayment levels. and XX%, that volatility investments unchanged together, coupon tapering on these relatively around range. trade near new quarter. on already we were speeds on coupon while Projected clarity in offer or occurred. other including the higher securities the given in for benefit from additional at greater backdrop continue And already returns possible dollar the look TABs remain slowing most investments high favorable during from has historically on favorable assets spread remain attractive return attractive do the historically relative single-digit the MBS, meanwhile, range. to returns Returns MBS agency MBS, most Spreads tight, firm,

basis. absolute As positions such, both to look and and levered continued relative MBS agency an on compelling

has employment At wages job more increase. broader months environment. be and elevated, job disruptions the the outlook inflation notably Most is intensifying respect for with return considerable and economic as same last the benefits uncertainty there and measures While to MBS for to appears to agency shortages chain levels, and normal are still the seekers, be to in growth improved quarter, and interest rate vacancies to supply outlook poised time, relative widespread. strong appear the coming outpace unemployment

and a transitory confidence the As that risk could result, Fed become persist If in to increasingly a actions to there difficult this this become increasingly intensify difficult narrative the defend. respect could to In scenario, view. Fed Fed's lose the is predict. with further, expectations inflation market pressures or inflation

favor uncertainty, this operating a conservative more continue we macroeconomic Given to with risk profile.

to turn call Looking in position arise. believe attractive protection, this a Bernie over the financial around ahead, advantage detail. greater we we investment us X.X significant well-positioned leverage portfolio, to times. opportunities considerable to very results current with as hedge environment at the With I'll now our of for are asset Together, well-balanced discuss that, flexibility they take gives and

total tangible share per common quarter. dividend $X.XX the had annualized return book AGNC and X% Peter. income comprised the comprehensive in our Economic equity you, X.X%, $X.XX of yield for increase value, net the Thank was of for tangible on quarter.

is with far times current So in our despite with operate smaller decision marginally. to September XXth. our value our our as estimate spread environment, the Consistent of net tangible asset for book to We environment, X.XX% drove our performance very lower in favorable opportunities, at-risk increase October, this very dollar net and up the our X.X equity and positive Notably, to hedge a tangible spread strong we dollar risk declined funding which stable roll income at $X.XX leverage roll TBA attribute cost, net interest strong to basis a for per XX quarter. base, remain point share.

life CPRs due rates. changes forecasted decreased of and higher portfolio in to composition quarter-end, as Our XX.X% interest to

Our also at for compared XX.X% prior lower actual XX.X%, the rate for quarter. prepayment quarter to trended the

ROE a of Our post-pandemic XXth, held assets most of XX.X published as this rate decreased September recent prepayment to month CPR. for

unencumbered credit Lastly, our unencumbered at increased and cash billion, our and which assets assets held MBS captive subsidiary. at broker-dealer quarter-end agency to excludes $X.X

Importantly, that, flexibility I'll over opportunistically as tangible equity to now of leverage. to the With mortgage strong our XX% Peter at market.. turn liquidity the noted, us increase Chris discuss gives considerable agency to position call

Thanks, Bernie.

Fed economy During slow progress to stage pace a job an the continued November to balance it the the begin that at setting the will announcement of upcoming sheet quarter, soon for third the official growth. good did make the meeting and

what and timeline rates in sharp market solidification and basis the were XX-year happened respectively. achieved Importantly, X X swap X-year higher Interest was XXXX. modestly the increasing of disruption, in contrast with tapering without points rates to for

concerns intra before quarter with XXX at selling relatively basis with stable nearly August in variant near the end spreads significant Fixed X.X%. quarter-over-quarter yields to credit was highs. early XX-year off down historical -quarter points volatility to there the were Delta However, remaining driving income

drifted signs agency the to rates Within MBS burnout. sector, coupons as higher, outperformed interest continued and speeds of prepayment higher actual show

markets seasonal likely It's to materially. risk trending deep do coupon Fed we term, a continue or reiterate, of the remain backdrop slowing in for from higher agency anticipated agency to and underperformed announcement the benefit tapering quarter-end. incredibly Fed official Over will MBS for continue prepared of the Lower is rates the widened and next the the deliver week, valuations funding the tantrum prepayment spreads factors hedges liquid, markets and supportive MBS. expect as repeat to since relative be MBS not cross-sector move will modestly taper the tapering. The lower, that and near prepayment

increase anticipate do with increase opportunity in volatility provide likely leverage. we an spread Fed, while us active and to widening will an so And an shallow be with events

portfolio quarter-over-quarter, [Indiscernible] billion billion portfolio was modestly As interest totals XX% rates of of and XX just billion quarter the meaningfully largely portfolio now significant end, was in X%. down With above prior investment billion unchanged. and X also in relatively higher over move protection XX composition XX that at the funding liabilities. our our totaled hedge unchanged asset from quarter, provides rates our longer-term interest event covered our

a rally likely I'll the rates duration years, relatively expect and to we turn to trade the current Our MBS little given in durations, Aaron favor X.X call agency change we discuss performing that under continue the non-agency at higher scenarios. to to prior to was the over positive slightly markets. most short outperforming now from a on duration scenario gap quarter. quarter-end In gap environment,

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

As spread spread post Chris levels, Kerry we tightening. as would generated crisis mentioned, from credit during will mixed that spreads current financial quarter At the to remain near returns primarily be and tights. future further opposed expect great were

The continued. to QX our X.X portfolio in holdings, with of the respect to in generally billion the mentioned to XXXX. as billion third modestly XX, Turning I activity themes quarter our June portfolio X non-agency from increased

the investment on in single will in of believe residential We front, some holdings lower portion we the deals. market. opportunities to CRT our credit mortgage CRT the our asset, single underlying continue the rotate And in able of attractive then based enhance upon we find CMBS which to return conforming borrower the portfolio tranches, profile strength a were

RMBS securities. label in our the we on position side, AAA private Lastly, increased

Mae shifted Fannie Looking returned the to favorably forward, the has [Indiscernible] backdrop market. as supply has

week, last Just Fannie their since deal QX first priced Mae XXXX.

be time. undoubtedly supply, to time should investment will issuance plans said That opportunities. the which option call credit there more for to transactions return While more XXXX protection potential This five-year their attractive at have remain that unclear, recent that will lead GSC's limit option somewhat total bondholders. to over a included extinguish for allows

competition touch over meaningful Finally, which non-agency market. and There on I'll repo to repo had At the reduced to be average lend points continues both costs costs against quickly borrowing haircuts. basis quarter-end, [Indiscernible]. to non-agency has declined our XX securities

Although back spreads the the over will been lagged asset has call has spreads, and tailwind. it compression With the favorable Peter. that a repo and I certainly to tightening turn

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

begin Ladies we'll Instructions]. time, and [Operator the session. gentlemen, question-and-answer this at

handset ask we your you If sound ensure pressing a quality. please the before Instructions]. pick keys you are do [Operator up using best to phone, the speaker

momentarily We roster. pause to the will assemble

first today question. Our your comes Barker from Kevin ahead Piper Please go with from question Sandler.

you near-term you. proactive my I expect you like seem opportunity It some Good taking seems leverage the shifting especially I with are you Fed's morning. that increase increasing really the a the more or here quarters? in questions. where tone in coming leverage the Thank the much coming actions. future, start for significant Thanks of to an especially mean, develop months to guess do over is in seeing near or

me let for some where Sure. Kevin. I we were Thank and give of sort are say is would we morning, question. you you What Good perspective we of now. where first the think

agency it Last third we lower If X.X our as the described MBS see the you sweet could fact we spot of because if talked at we could think investor take we I really to in tapering the we're it spreads widening, think Quarter look downside meaningful cheapening, risk widen quite in opportunistically. meaning back being demand, and today, quarter, it in we spread but There Leverage could Any any the be X.X, relative up I And position when strong in cycle, so will the at times, asset to certainly stabilized market. in met around down around our volatility volatility there, expected much describe still to a the less with be but in about it I Position, turned spreads MBS sort tapering bought. But particularly to attractive classes. think will other mortgage further. widened or be in as way quickly take further would bit, be things agency

our So way the we expect position to time. equal, agency more leverage do things optimistic favorable are would our I respect other over landscape to is and I describe today with more that and all the increase

In we're our optimistic would operated as more environment X.X back are on piece respect really the to do our still something and little employment. with rate agency that's a think to a right there normal there inflation an one could about be its as environment, potentially close like operating XX where macroeconomic prepared be in range. interest X.X lot times MBS moving volatility. you to historical rate remarks. lot about still be to we pieces we times If that was more a it communicate And now, trying more where the The environment basis, to its to and well has are Fed a cautious interest of the We're because

measured, in time, to try really right now. that we position do and that. investment think But it going we're So really we to we with said, And do to our we're really cautious a ability being position, be our so leverage and We're all increase in have deliberately, to opportunistic the improve over choices. but expect strong earnings do

a but we of decision. want have with we lot investment So be to upside, patient our

then me -- follow-up comments, of and on your but correct just Okay. I'm a some wrong, prepared if And

Sure.

value. the more that it economic interpreting how versus appeared should -- or or correctly, your of shareholders for are Am to dividends expect prepared earnings incremental driven book by that be you return more -- I I comments?

say you you I I really annualized an would in book was was Yeah. look what driven great environment observation Quarter, positive. is It's by our slight think Last where of all economic is what at just interesting just return dividend. if which of Essentially, value described example stable, our a X% back

into to from now. her seeing right in more positive, book into generally speaking, slightly be -- as very Bernie in and our case October we the value -- that's So are spreads stability here, value agency That positive. book mentioned we continues the prepared remarks, was

probably little it's your then coupons today, around stable, that a majority economic the been the if sit slightly. Again, October conclusion maybe of have return a outperformed we were X.X%, will because mortgage our by right our dividend. have spreads, again As driven that than up more would a in higher case, the of be return be X.X%

taking questions. for you Thank Okay. my

Sure. Thank you.

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

morning. Good

comments likely your spread be comments the with on to TBA, is tapers And widening. starting on follow sorry to up wanted that about your modest. Just just

you it with where quantify that demand is mean, like you a you basis Now, points be think where I it -- you that just is out. or could think plays how XX-XX met strong curious your could think bit?

tight look Hi still back don't mean, morning. and I look Interesting basis. historically, mortgages answer know. historic you on do the Yeah. But question if we Bose. is Good a

number policy, asset back maybe soon here, too think But the previous XX don't don't can But the wider. if it's current we or tapering other done only wider. mortgage be Fed level that are, right deliberate given tapering. XX end patient It that points also it's the You know the driven by is it's returns Fed reinvesting in made of reinvestment market and for to day, the at But the a generally on considerable basis look once out. right really for and period going they tell valuations, rate we could make to paydowns to play environment is that of again, be case points way you would is and the technical key the we the given environment, speaking. the But slightly basis be think maybe for be mortgages be some where interest not positive given to think that. how a time, all and being really mortgage to We the that's going the lot the comments speaking, is a cycles, the Fed does generally in for the going what they've market. the will and

higher, to economy continuing replace about its and at the think you of if mortgages, to are Fed that supply the runoff. the lot we're recovers right -- a going of less it, time, mortgages its means if addition, buy rates In to there's same be and will

up mortgage going to So unfold generally just underweight. we relatively investors course, pretty mortgages that's the environment well think over from could the then for shape perspectives market, but other time. are to speaking, of And have

going there's of I to MBS. be lot for a agency think demand

be could like expect don't be there in cycles. previous but widening So saw anything it we some to we spread

Okay, And far? quarter that TBA, and great. think That's switching mentioned look given year? what year, just specialness the especially you to helpful. TBA How 's do you of Thanks. does level looking so over specialness. Fed, will fourth next look with into out the next this In just then, how

some that. XXXX. more to I'll have on remain But Chris on. fairly go Sure. that Chris, really speaking, attractive expect generally through just you details give we

Sure.

production in they're quarter basis trading and very, around majority XX XXs. the which the of Xs of traded very ROE So case negative well X.X, third the points currently in during vast or represent

likely implied will roughly strong. points tapering, said, specialness to so are XX% Well, remain as of XX% financing rates the despite repo. likely versus And points, Peter basis And a that's weaker. bit negative trend to technicals basis XX

I say ROE it's they likely backdrop through will probably mentioned for even the I'd Peter continue end our averages for some ROE as supportive, the elevated well that with quite will of in The it's time. $XX to position $XX range, think given incredibly historical likely upper XXX billion QEX Fed towards tapering, guide, reinvest trade to market middle range. to long-term -- reinvestments. that next And on stay runoff the and if tapering and mortgages Fed nearly years a the which billion a between net likely the the started is cycle, QEX took now rate add will a basis Fed three to as year. of serve following next into well earlier, hiking can continue the is before in the

to so likely And worst going that's it's just Fed float probably of month a by they're the obviously the take even the And market. out continue continue But of the markets deliver from after float with never this middle month growing paydowns, to on doing consistent I the dynamic they after its the to month each worst well in of prior an the incredibly enjoyed reinvest to this the XX-XX rates mean, stops sheet next are billion QE, going to prepayments. deliver year, next and rate of takeout to balance cycle. important hiking in level depends to the magnitude. probably but into for consistency

to think ROEs quite we historical going to through so some time. And trade for are averages continue

Great, helpful. thanks. That's

Bose. Thanks,

with from your question. go Our Suisse. next Doug Please question ahead comes Credit from Harter

bit potential the talk a given -- concerns little the approaching hedging Thanks. inflationary you about risk you're about to and rates. the comments could hoping how Peter, portfolio

lower portfolio. think and rate and Well, may volatility of think an be continue both of active really environment to risk interest the environment of portfolio important I in. But asset operating duration because the to amount we us continue you overall composition close gap. side an this have, about we relative potential to that small our going XXX% from has along to to between in going see on hedging hedge with rate hedging to of point hedges coupon be continue hedge We're and low coupons. is lines. higher well-managed rate we're interest interest the rate see the and you're to TBAs X our Sure. going other where have as hedge perspective interest sort and of relatively how a generic MBS ratio portfolio keep the different well-balanced profile historical and developed to by the first our Those terms those well instruments a is and We're standards have off, you can our asset needs, portfolio overall know

well our from balanced of in third X -- If the the X you curve look to a to X across year, sector, a in the third XX perspective, and our call to duration hedge year at it portfolio X the hedges it's sector. really third the in are a about a now, X year

which So curve, balanced we're is well across the think I important.

in hedge optionality rate our and to where the want more to, increase have an mix. gets volatility environment going us seen option-based our we're be if increases, portfolio that You've interest in in to really we hedges

XX% rate the replaced As a Chris to other rate and and they're right will curve thing if a we're mix, mentioned, the volatility some there that's question if pickup portfolio; a kind I overall likely optionality its there us our if to of part high the see of that of hedge middle five-year some will negatively is interest options, be continue curve swaptions curve. right so quite around of Fed the lot we add that do -- of to a the around hedge swaptions. the and and ratio, our close if around It's bit you'll likely is of most be maintain that had curve added some the part of the of point is impacted moves, there added

has to under this example, date. part curve, And performed the so five-year of for Quarter

see Fed. in you'll like an in a more we the curve us with a likely from little that of perspective hedging part be may use environment so the bit And

to So with high-level respect our those the would comments hedge approach. be

that TBA TBA portfolio mix portfolio do covers Great. and guess, construction, be And environment [Indiscernible] about you whenever The then about specialness the think construction? just how talking it in between following were this that may I you may up normalizes. be. whenever as

Yeah. Well, off, first ways that's think away. I that

have I position TBA Chris expect just with Chris maybe into to to well XXXX. a gave outlook specialness, respect As into sizable that XXXX mentioned, and us given the

So I you the in start basis does long and level we're that, gradual XX-XX specialness between of movement be happen. it's and away that points, to XX TBA Chris think there to not in ways a as recall, is I on-balance typically it But down always from that will sheet an think the when some probably pool historically specialness just described.

the So benefit there TBAs the but that of course return between incremental pick favorable make have described just is over to from then some being on real-time run. to a portfolio make question the and we might that getting that that trade-off always as underlying really we Chris up we That's from the and a and long perspective that there's have the be the delivered, characteristics we basis. very

always value over shareholders at best that So we so us greatest the for can't But rates, generate portfolio will composition we we economic can can the ability of us change of the greatest variables range far the that we to book here ourselves the best the diversified how that carry looking end and the really the gives the can. today to our give return in give generate forward. stability sit at those are portfolio say trying and I best day, and

Peter. Thanks,

Sure. Thank you, Doug.

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

the With -- pretty coupons, X% question now, over held spec-pools With higher if just just rates the curve. sensitivity can of good bonds is, mark-to-market the might guess premiums the kind share of of you rates mortgage right rates there, [inaudible Hey, we're at morning. for looking up thanks. you morning. pushing I also sensitivity XX:XX:XX] And those Good envision then end at well. kind what carry mortgage mortgage short have higher.

Chris Sure. and will take chime Yes. in. I'll that then Eric,

Yes.

or consistent the they continue fair higher-coupon bonds fair, trade valuations These upside look several prepayment means minus still to is and been think for pretty XX has short thing now basis given amount should we to price pretty points rates. last higher plus to a of speeds, the that that burnout to prepayment There's durations. into respect theme months season with which So SPAC, that a durations. important fast have

for park our coupons. effectively benefit well, so coupon these positions reason, wider as some holdings profile of more spreads, mortgage given and flatten in Steeper the compliment coupon that that help they'll that are lower curve, the mentioned, scenarios that And higher lower positions really portfolio. difficult convexity Peter of vol, the for

we're not up, XX And at prepayment Eric, reveal that itself what I securities what Last to current seeing the that that as And start burnout are put high each would seeing carrying attractive. improvement add is, in We outlook. environment gradual is you prepayment price know, another described, to we're that price Those higher that for not Those fast environment. positions behind their also we fast the prepayment expect move another continue. those of the But quarter are the speed, us. Chris prepayment exceedingly progressions prepaying seeing saw the is have the why positions very changes as is of the in we higher-coupon on we're to positions cpr but through quarter reflect as coupons have, current Quarter of yield past Quarters, been went will, those X each and we month now a and speeds prices you improving. if well

So prices that speeds improving. those are prepayments each quarter passed, the

well end respect against against X-year, of positive the lot the continue. composition of a protection part performing X-year us I curve, of that having curve. the point scenario. shorter gap about Those with give the this duration the X, was under mortgages comment why to down-rate the amount a a your our to us to that just then significant operating protection the to a of hedges We as position some with in to give hedging, made and out hedges this expect on portfolio round And as of our

So I hope your that question. answers

home was price Can on and conversation the guys a speeds? quick share you around modeling you speeds more appreciation expectations prepayment That burnout Yeah. helpful, how for maybe really generally. follow-up incorporate and

having levels, see think And capacity of start I we're out, a accumulated turnover. great that thing turnover In Yeah. expect off fast from in to is market. focus going management just to as of be refis a that excess increased it with mortgage positive move position the well convexity house continue the the higher. rate price lows, we that I perspective. mean, materially mortgage reasonably a on given so some into In to investor's from perspective should appreciation could cash improves from if a the the housing mortgage -- to rates a of price and the higher continue risk house rates still and

Good stuff. much. Thank very you

Thank you.

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

All right. Thanks.

morning. Good

the baseline that? timeline, concern in you guys and be One that expectation were taper, uncertainties the around you out change any think be now some of is from how level able what more -- change to that if this talked are the taper about could a increasing the Do timeline think macro there. about risk there's the there's market digest the to curious if at would the point now, question of the I'm you inflation, Fed there

don't It's know. answer a we good is The question, Trevor. obviously

you so in Fed. tapering within been I in clear a the wanted and lot think would be they think was seem this have be timeline, what what And do and off way to the where X position at were the point compromise an they meeting Fed they've ready I its with the time. faster that they so preferred initiate, lift the to X the communication if be settled, didn't last do But did in there of think someone [Indiscernible] some to surprised Quarter, approach month its would I if approach. Fed seems back that. they're months Fed discussion has to Second indicated we -- to

they or would course, Of they X flexibility it I just do to the but that period the have us the be that commit, going they down either they maybe direction want with but not stability are month think the great, accelerate give time an do market, If I that approach, indication to that. think, to in the they I'm go. would sure it. commit, of for that's slow to don't

I think that would retain they optionality.

right, is, that are flows Chris to could create debt present they they But the of you're And a at little described, some think and attractive point. that reinvest volatility bit that. point accelerate cash add of so period a And the time. side is going at always could investments why to that some we we that do flip then of that's risk that in it, opportunities going still there to it ultimately even back are if cautious

I next that is think, That's starts think to really, to wait develop reinvestment year be how going some and lot a last? to dialogue just buy the they're long we to but to interesting to to time. for and going they're and just mortgages of next end, are lot the will substantial. going And balance we're that their of balance does going mortgages of in period add year, sheet, be where see, grow period they going So it have maintain a net

sense. makes Okay. That

I my have all asked the questions think of Thank answered. and been you. rest

Thank you.

question And with go Shane from JP our your ahead Morgan. Rick next Please question. from comes

bit quarter. taking thanks what a answered, actually my but terms for want asked of question. to little Most been of hedging guys, from we in on the the should the take them Hey, have during moves really delve tactical hedging, in I just and

increase the position flat. reduce you you you short modestly, position the mentioned, as the swap treasury kept swap You

bit strategizing your rates. a longer, to but that that think for view Fed that rates still are be is and I more what suggests for ultimately that hawkish higher going is a lower

Yeah.

-- if If made to our fairly look composition. changes back at, substantial you you some hedge we've go

a impact the that curve the we and of curve. of we I reasonable to If then increases, forward the pulls you dated of going respect or to have the in year, and volatility with of opposite lot the beginning curve the lot effect Second steepening, of added we amount very of Quarter there at yield the the Quarter the the longer as is back on Obviously with flat, of shape an that curve. that's the Fed market still short-term yield the moves shape the yield rate were about think where year, were benefit a course hedges gave the First we beginning in about think because the at worried a and us of had

a curve of really value bias, portfolio level that place them you've a higher, for are to perspective more So seen be to gives out stabilize stable, generate they that. if seem rates the macro in say, today MBS point, our anything, to place that'll the a market be out us biased business a balance to is at. the which scenario our a will They X% to for -- us X.X XX-year. our incremental reasonably in is with pleased certainly be healthy your think rates there position. lower. hedge We'd little be a now, not comfortable if from a flattening really in going And type to healthy And agency be range for very hedge. on we while do for That's example, range, that do

very talked in performed Last risks, way moves. good protection, again, options for Quarter risk about finally, reason And but always up I give gradually. the are we now, more think when outsized see that well we much so compared two mortgages But exposure us that a to options scenario. lot

billion than has today Our around a less at strike option $XX X% portfolio at X.XX%. of

those and a be us of to does amount economy it higher of will active. rates those lot become will have believe time from a which options Fed the over So there could take be Interest if does against generation and hold, significant options outsized we will, protection moves. the value give really

over increase So position continue, that to well time. us as you'll see likely,

is in your perspective little from the a we're And now bit Got a it. from environment easier. perspective, hedging

about less more easier apologize. a spreads to your point point, got opposed skew this understand rates You've you you higher a my widening to It's you as concern manage I But market. risk you point. at early, is or point, this the towards have at tad two-way feel just have to -- a a binary

one volatility is shape say more a be there's like yes, but which the to in of challenge, Well, curve. I there is would the caveat think to that could which I

think lot of curve. the Fed on that on slow hedge its steep market If bit the impact have if objective curve the reaction behind location as shape little thinks more insignificantly. a 's is it'll So of to about the and a react, Fed the the could challenging happen market prices is inflation what will function, you the yield

pull And inflation behind that take and have so going movements curve. the that. like to it's to flattening that hedges if 's the you'd have part forward rate of last the to quickly the with moves, a actions just curve. and that that want going and on effect thinks We've seen in on Conversely, XX market its they're in the unfold Fed XX days your curve

it the that's I think that part So makes one challenging.

be So dominant of XXXX. your one that's more order to moves, forward active a to hedges moving challenging back of moving That's some the the could in the part question and be the value. generate have bit market part, from you in little in where curve in incremental the rate hedging that terms to other or pulling is

so you much. Thank helpful. really That's

Sure. All right. for Thank you much it. so

remarks. over that, Peter like with for to any session. back we'll be turn the gentlemen, to question and answer Federico ladies and ending today's closing And I'd floor

the look next we quarter appreciate you. you concludes forward Thank today very quarter. participation on to everyone's Thank to again our and call. That We you third much. call speaking

and conference thank attending. do you for We we'll question-and-answer gentlemen, ladies today's with that, end And call. today's session and

You may now lines. disconnect your