AGNC Investment Corp.

Good morning, and welcome to the AGNC Investment Corp. Second Quarter 2020 Shareholder Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key, follow a zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchstone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Katie Wisecarver in Investor Relations. Please go ahead.

Thank you all for joining AGNC Investment Corp. second quarter 2020 earnings call. Before we begin, I'd like to review the Safe Harbor Statement. This conference call and corresponding slide presentation contain statements that, to the extent they are not recitations of historical facts, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of AGM states. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the risk factors section of AGMC's periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law. Participants on the call include Gary Kain, Chief Executive Officer, Bernie Bell, Senior Vice President and Chief Financial Officer, Chris Kuehl, Executive Vice President, Aaron Pas, Senior Vice President, and Peter Federico, President and Chief Operating Officer. With that, I'll turn the call over to Gary Kain.

Thanks, Katie. and thanks to all of you for your interest in AGNC. We were very pleased with the performance of our portfolio in the second quarter with economic return totaling just over 12% as we recovered a significant portion of our Q1 loss. More importantly, we remain optimistic about the earnings power of the portfolio across a wide range of possible economic scenarios. This favorable earnings backdrop is evident in our net spread in dollar roll income, which increased one cent per share to 58 cents in Q2, despite a smaller portfolio and lower average leverage. During the second quarter, market conditions improved materially as the unprecedented monetary and fiscal support drove a dramatic recovery in equity markets around the world. The S&P 500 recouped almost all of the Q1 losses, while the NASDAQ finished Q2 over 10% higher than where it began the year, a quarterly increase of over 30%. Fixed income credit also performed very well, with most credit spreads recovering close to 70% of the Q1 widening. Interest rates were very stable with the yield on the 10-year Treasury ending the quarter within a basis point of where it closed on March 31. The short end of the Treasury and swap curves performed better in response to growing confidence that the Fed will keep the funds rate near zero for multiple years. Despite very limited interest rate volatility, massive Fed support, and the dramatic recovery in credit-centric products, generic agency MBS performance was mixed, with lower coupons tightening modestly while higher coupons widened. Specified pools, which underperformed dramatically in March, saw a significant recovery. The outperformance of specs drove our strong book value and economic return performance for the quarter. Contrary to expectations, the mortgage origination market was less impacted by lockdowns and social distancing. Refinancing volumes remained very robust and we saw a rapid recovery in the home purchase market. The heavier than expected origination volume which totaled $730 billion in the second quarter, served as a major offset to Fed MBS purchases. As a result, lower coupon agency MBS valuations, while modestly tighter quarter over quarter, remained attractive both in absolute and relative terms. This attractiveness is further enhanced by improved dollar role specialness in lower coupons. a trend we expected to see during the quarter. As Chris will discuss shortly, incremental levered ROE potential on low coupon 30-year TBAs is still in the low to mid teens depending on the amount and durability of role specialness. In contrast, the projected returns on most higher coupon specs have declined to the lower double digits on the back of Price increases and faster prepayment expectations. From a big picture perspective, the current investment environment is very different and more favorable for us than the QE3 era. Back in late 2012 and early 2013, the Fed's purchases drove agency MBS spreads to valuations around 50 basis points tighter than today's levels by most measures. While the QE3 tightening was temporarily good for book value, it materially lowered our expected returns on new purchases and set the stage for the significant widening and spreads that occurred when the Fed telegraphed the tapering of its purchases. Despite Fed purchases of over $850 billion since mid-March, MBS valuations remain attractive, benefit from favorable dollar roll levels, and are easier to hedge given the zero interest rate bound. In summary, we feel good about AGMC's performance in Q2 and remain confident about the earnings potential of the company. Given the lack of credit risk in our agency MBS portfolio and the favorable funding backdrop, we believe AGNC should be able to produce strong returns regardless of the progression of COVID-19 or broader moves in the global economy. This potential for our portfolio to perform well in either a risk-on or risk-off scenario is somewhat unique to AGNC. At this point, I will turn the call over to Bernie to review our financial results for the quarter.

Thank you, Gary. Turning to slide four, we had total comprehensive income of $1.60 per share for the second quarter. Net spread and dollar roll income, excluding catch-up AM, was $0.58 per share for the quarter, which, as Gary mentioned, was up slightly from Q1, despite a materially smaller average portfolio balance. Lower average leverage and meaningfully faster prepayment projections. These earnings headwinds were offset by lower aggregate funding costs, which drove the slight improvement quarter-over-quarter. Tangible net book value increased 9.5% for the quarter, led by a significant rebound in spec pool valuations. Including dividends, our economic return on tangible common equity was 12.2% for the quarter, recovering nearly half of our first quarter economic loss. So far this quarter, we estimate that our tangible netbook value is down a couple of percent given a modest pullback and spec pull payup values. Turning to slide five, our average portfolio at quarter end totaled $97.7 billion, up $4.7 billion from the end of the first quarter. Our ending leverage was 9.2 times tangible equity down slightly from 9.4 times as of the end of the first quarter. As I mentioned, given the significant decrease in our average portfolio balance for the quarter, our average leverage was down meaningfully for the second quarter at 8.8 times tangible equity compared to 9.9 times in the first quarter. Our liquidity position remained very strong in the second quarter and is above pre-crisis levels with cash and unencumbered agency assets totaling $4.5 billion at quarter end. Importantly, that figure excludes both unencumbered CRT and non-agency securities as well as assets held at our broker-dealer subsidiary, Bethesda Securities. With mortgage rates dropping to historically low levels during the quarter, repayment speeds increased across the coupon stack. Actual prepayment speeds on our portfolio increased for the quarter, while our forecasted life CPRs increased 16.6% from 14.5% last quarter. Lastly, during the second quarter, we repurchased $147 million of our common stock at substantial discounts to our tangible netbook value for an average repurchase price of $11.99 per share. With that, I'll turn the call over to Chris to discuss the agency market.

Thanks, Bernie. Let's turn to slide six. Interest rate volatility was muted in the second quarter, with 10-year treasury rates ending the quarter one basis point lower at 64 basis points. The yield curve did steepen, with two-year and five-year treasury yields 10 basis points lower, ending the quarter at 15 and 29 basis points, respectively. Agency MBS spreads were generally tighter, but performance was mixed with lower coupon TBAs modestly tighter while higher coupon TBAs were modestly wider. Specified pools, however, were the best performers, regaining most of the Q1 widening. The unprecedented support from the Fed with purchases heavily concentrated in production coupon MBS drove the outperformance in lower coupons, even with gross supplies significantly larger than expected. As you can see in the lower left table on page 6, higher coupon TBA 3.5s and 4s declined in price during the quarter as prepayment speeds generally surprised to the upside as the widely expected COVID-related headwinds to housing and refinance activity did not materialize. Faster prepayment speeds on more generic cohorts and the weakness in higher coupon TBA led to a strong outperformance of higher coupon specified pools in the second quarter. Let's turn to slide 7. You can see in the top left chart the investment portfolio increased by a little over $4.5 billion as of June 30th. Given the outperformance of specified pools, most of which occurred in April, we continued to trim positions in both higher quality and generic higher coupon MBS versus adding production coupons. During the quarter, we reduced holdings in 3% coupons and above by approximately $12 billion versus adding $16 billion in 2.5s and 2s. As I mentioned on the call last quarter, we expected dollar roll financing to improve as the combination of very strong origination volumes and large Fed purchases, which continue to clear out the worst bonds in the float, create an ideal backdrop for dollar rolls. Roll financing on lower coupon TBA is currently trading around 20 to 80 basis points through repo depending on the coupon. With this degree of specialness, the potential contribution to returns is material. As a hypothetical example, with gross returns on lower coupon 30-year MBS funded with repo around 12%, 25 basis points of dollar roll specialness has the potential to add more than 2% in incremental return. Realistically, roll specialness could be even higher as it is today, but there's no guarantee that it will persist. We remain optimistic about the investment environment given relatively widespread, attractive carry, and low interest rate volatility. And while the prepayment backdrop is certainly not the tailwind we had hoped for, our diversified portfolio of higher coupon-specified pools and production coupon TBA has offsetting risk characteristics that position us well in the current environment. I'll now turn the call over to Aaron to discuss the non-agency markets.

Thanks, Chris. I'll quickly recap our current positioning and then update you with our outlook on credit. Please turn to slide eight. After facing unprecedented price action in the first quarter, both equities and credit markets staged a fierce recovery in Q2. As it stands now, we've seen a V-shaped recovery in credit spreads, yet an uncertain backdrop remains on when the economy will be fully reopened and the resulting toll on the consumer and business sector. To put the magnitude of the rally in perspective, from the start of the year to the wides in late March, IG and high-yield CDX spreads were approximately 100 and 600 basis points, respectively. Subsequently, they have tightened about 70 and 370 basis points. Our holdings across the portfolio were largely unchanged, with a slight shift in the vintages of our CRT portfolio to more recently issued securities. These are generally more exposed to and benefit from higher than anticipated prepayments, which is a natural fit for our portfolio. On the residential side, as we mentioned last quarter, the quick implementation of forbearance programs would likely result in reduced downside pressure on housing prices in the near term. The GSE subsequently announced the ability to defer up to 12 months of payments, thus giving borrowers a much easier path to return to current status. This was particularly beneficial for credit risk transfer as it served to reduce potential modification-related losses. This change, along with faster-than-anticipated prepayments, stabilization and forbearance requests, and the improved macro backdrop led to a strong rally in CRT. Additionally, many of these same themes were supportive of credit spreads in other parts of the residential credit markets. On the commercial front, while increases in delinquencies have stabilized for the time being, we believe this sector remains particularly exposed to the stops and starts in the economy. While we are comfortable with our positions from a risk perspective, we generally remain defensive until we get better clarity around the timing of a potential return to normalcy in the economy. Looking forward, with the Fed actions setting the stage, We are likely to be in a regime of relatively tight credit spreads coupled with an elevated fundamental risk environment for some time. This does present many challenges and particularly so for levered investors since the risk return equation is a bit skewed. At the same time, with rates expected to sit close to the zero bound for years, it also means picking the right bonds today could generate reasonable returns as bonds that ultimately have sufficient credit support are likely to see a spread tightening over the coming couple of years. With that, I'll turn the call over to Peter to discuss funding and risk management.

Thanks, Aaron. I'll start with our financing summary on slide nine. The repo market for AgencyMBS traded very well in the second quarter and continues to benefit from the Fed's open market operations as well as the very significant influx of cash into government money market mutual funds. The substantial demand for high quality collateral like AgencyMBS has led to a meaningful repricing across all repo tenors. As a result, our average repo costs fell to 76 basis points in the second quarter, less than half of the 180 basis points we reported in the first quarter. A key development during the quarter was the Fed's communication regarding their intention to keep short-term rates near zero for the foreseeable future. Chairman Powell's statement that the Fed is not even thinking about thinking about raising rates makes that very clear. As a result, the repo funding curve flattened significantly. Today, for example, there is only about a five basis point cost differential between overnight repo, which trades at around 15 basis points, and one year repo, which trades at around 20 basis points through our captive broker-dealer. I expect these favorable funding conditions to continue and as such I expect our average repo cost to drop to around 40 basis points in the third quarter as more of our outstanding repo resets at current market rates. Our aggregate cost of funds, which includes the cost of our swap hedges, fell to 88 basis points in the second quarter, down meaningfully from the 167 basis points the prior quarter. This improvement more than offset the decrease in our asset yield and drove the notable improvement in our net interest margin, which increased to 168 basis points. Looking ahead, I expect our net interest margin to improve further in the third quarter. Turning to slide 10, we provide a summary of our hedge portfolio. which totaled $59 billion at quarter end, unchanged from the prior quarter, and covered 66% of our funding liabilities. As we discussed last quarter, with swap rates at such low levels, we continue to view this as an opportunity to lock in very attractive funding for an extended period of time. As such, we continued to adjust the composition of our swap portfolio in the second quarter, Unwinding more of our shorter term swaps and replacing them with slightly longer term swaps. As a result, the average maturity of our swap portfolio increased to 5.1 years at quarter end from 4.5 years the prior quarter. On slide 11, we show our duration gap and duration gap sensitivity. Given the stability of interest rates during the quarter, our duration gap remained roughly unchanged at negative 0.1 years. And with that, I'll turn the call back over to Gary.

Thanks, Peter. And at this point, I will open up the call to questions.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To answer your question, please press star then 2. This time we will pause momentarily to assemble the roster. And the first question comes from Doug Harder with Credit Suisse.

Thanks. Gary, can you tell us how you and the board are thinking about dividends given kind of the much higher level of earnings this quarter and your commentary about that, you know, those conditions persisting?

Yeah, I'd be happy to, and thank you for the question. When you look at our net spread and dollar roll income performance this quarter, and realistically the fact that it is still probably biased upward from here, you certainly could conclude that our dividend cut was unnecessary. and we made that move back in April just a few weeks after kind of the depth of the crisis. That being said, I do think it's important to also view it, I mean, in our minds, while it may have been unnecessary, we're not sure it's not optimal in terms of the return kind of profile for shareholders. If you look at our dividend yield relative to our stock price, it's obviously just north of 10%, which is still a very attractive dividend yield. By having a dividend so far below net spread and dollar roll income, and even versus that trajectory of net spread and dollar roll income, it really gives us a nice tailwind to book value over time. and that's not a bad situation for us to be in and for shareholders. So very attractive dividend, tailwind for book value and then obviously we also have a share repurchase program in place which we're certainly very, very willing to use as another way of returning capital to shareholders if that makes sense. So big picture, it is something that we will continue to look at. And we will evaluate over time. We're cognizant of the large gap between, again, both our current net spread income and the likely trajectory, again, which is still positive, and where the dividend is. We also want to be cognizant that there are some benefits to this situation as well. It is something that we will evaluate over time, and it's something that the board is going to be very focused on.

Just to follow up, those points all make sense. How much flexibility do you have from a taxable standpoint? There's a wide gap between taxable income and our core and so realistically our taxable income is very low at this point and projected to be very low.

So that doesn't come into play with respect to the dividend. We have lots of flexibility with respect to the dividend. The reason taxable income is so low, I mean, there's multiple reasons, but one is it treats dollar roll income differently. Plus, in light of all the activity over the, in particular in the first and second quarter, in terms of repositioning the swap portfolio, changing the duration around, probably by far the biggest differential between gap or net spread in dollar income and taxable income relates to terminated swaps that get terminated, which then get amortized for taxable income, whereas they're taking as an upfront cost on the regular income front. I don't know, Bernie or Peter, if you want to add anything to that.

Gary, that last point is the key one. And obviously, we still have some rebalancing to do there. So our projection for that taxable income is that that's not going to be a constraint for some period of time.

Great. Thank you, guys.

Thank you. And the next question comes from George with KBW.

Hey, good morning. Actually, can you go over the drivers of specialness in the lower coupon MBS? And also, when we think about your return, should we Think about a base case return on the spread income in the low double digits and then the specialness being what flexes it up and down from there.

I think that's a good way. First off, I'll take the second half of your question first. I think it's a good way to think about it. And we start by thinking about, okay, if we buy a new production 30 or two or two and a half, what, you know, and let's say, you know, we think the spread is 110 to 120 in that zip code, depending on prepayment assumptions. You know, that's the right, that's a good starting point. However, you know, the first part of your question is really If you think about the drivers of specialness and what creates a situation when dollar rolls are special, the first piece actually is everyone always says the Fed, and that's a huge piece of it, and I'll come to that. But the first piece is actually significant origination volumes. and we are seeing that like we've never seen it before, where the last couple months have been around 250 billion a month in gross issuance. And remember, the way the origination market works is people sell those forward one in two, three months even, and so that drives down the price of out-month PBAs. and that's the first step realistically in creating specialness. Now, second of all, you've got massive Fed purchases which continue to take out kind of existing production and the Fed purchases are in the neighborhood of 40% of that origination, total origination. and what importantly what the Fed purchases do is they take out kind of the fastest prepaying kind of least desirable pools within the float, which means that, you know, then that gets priced into dollar rolls because the bonds that float around for other investors are dramatically better. So when you put those two pieces together, You have the, and I think these are the words Chris used, the ideal backdrop for role specialness. And so we do think we're in that kind of situation. We talked about that on our April call. The role specialness hadn't really materialized because we were still working through balance sheet issues and other things in April, but it really started to materialize in May, June, and it's continuing now. So we feel very good about the sustainability of role specialness. Now, it's going to bounce around in terms of the magnitude, but in the lowest coupons in both 30-year and 15-year, we feel pretty good about the fact that it's sustainable, certainly over the near to intermediate term at a level where it's going to add to ROEs. So it is important to, while you start in the calculation where we talked about where you would on a repo-funded position. We do believe that TBAs are going to outperform that because of the role specialness.

Okay, great. Thanks, Gary. That was very helpful. And then actually just on your prepayment expectation, can you just talk about what you're thinking in terms of the primary mortgage rate, like what that does versus a benchmark over time?

Sure. So, I mean, the primary mortgage rate has been trending lower and likely will trend a little lower from here. And that's certainly something that, you know, both we and I think the market certainly understands. Another factor, you know, that comes into play at some point, you know, obviously is expectations around interest rates. You know, and when we look at things, we factor in the forward curve, which does have, you know, after some period of time, puts an upward bias on the mortgage rate as well as long rates. So, you know, in the short run, the biases toward somewhat lower rates, mortgage rates, again, because the primary rate drives prepayments in general. There are other things to keep in mind. I mean, we don't know. The other things that factor into refinancing activity and prepayment estimates are qualifying, obviously, for mortgages. And we are seeing an environment where unemployment is likely to be elevated for some time. and we are seeing a tighter underwriting environment than what we had even three to six months ago. So I think there are some offsets. The other thing to keep in mind about prepayments is that in these refi waves you see these peaks or big bulges and sometimes they're more narrow and other times they're a little more spread out. With the mortgage rate dropping in light of these circumstances, it may be a little more spread out, but there is this element of burnout where people have had really good opportunities to refinance. and even if the opportunity is a little better, if they didn't take advantage of 100 basis point opportunity, taking advantage of 110 basis point opportunity five months later doesn't necessarily do the trick. So that's a long-winded answer, but I tried to touch on a couple of different elements of that.

Okay, great. Thanks. It was helpful.

Thank you. And the next question comes from George Rahamondis with Deutsche Bank.

Hi, good morning, Gay. You alluded to a favorable backdrop for AG&C given a very accommodative Fed. Your Fed funds rate is anchored near zero, hedging dynamics are attractive, and Fed purchases are likely to continue for some time. As you think about downside risk to both value and dividend sustainability and kind of near to medium term, what would you say are the biggest kind of things that are on your radar today?

Sure. Look, I mean, I think the, you know, I'll start again, maybe in reverse order. You know, we're not, going back to the earlier answer on the dividend, we're not overly concerned about, we're not very concerned right now at all about dividend sustainability. You know, the biggest headwind or potential headwind to book value is in the near term is probably continued faster prepayments and some incremental pressure. We've already seen it a little in the last couple weeks on spec payouts and higher coupons. So I wouldn't honestly be surprised to see a little more of that, but we're talking about that in terms of a couple percent here or there. There's also some risk to book value certainly of lower coupons in bouts of when there's significant origination volumes that can exceed certainly the Fed's bid. And if there isn't significant bank buying at the time, I think you could see periods where lower coupons widen a little bit. But big picture, without significant interest rate volatility and with the Fed backstop the way it is, it's really not an environment where we expect to see a lot of book value volatility. And I would say that's true in either direction. I know people would like to see what's a scenario where book value explodes from here. It's possible that The Fed activity could drive book value higher, and that could be a relatively quick move. We think that's unlikely. We think we're more in an environment where book value is going to be relatively stable on both sides, and we're going to be in a favorable earnings environment. What's important to keep in mind about our portfolio is We sort of have a mix now of lower coupons, which really benefit directly from the Fed, which benefit from the dollar roll specialness, and where there's very limited prepayment fears in the near term. And then we have our higher coupon specified portfolio, which we continue to sort of optimize and prune and try to tailor for the current environment. and, you know, those sort of have different risks and I think that also helps to reduce the book value volatility embedded in our portfolio as a whole. But hopefully that helps.

Great. That's helpful.

Thank you.

Thank you.

Thank you. And, yeah, next question comes from Trevor Cranston with JMP Securities.

All right. Thanks. Good morning. Follow-up to the question about the prepay outlook and your thoughts around the primary mortgage rate. Can you maybe, just to ask it a different way, can you maybe talk about sort of what you would expect to see in terms of prepay speeds? You know, for example, if the primary mortgage rate hit 2.5%, you know, recognizing that it may be sort of a flatter peak when speeds increase. I guess How sensitive generally do you think speeds would be to like a 50 basis point decline in mortgage rates?

Thanks. I'll start now. I'll let maybe Chris chime in a little as well. But the short answer is it depends very much on what type of security, what coupon you're looking at, what seasoning, how long has it been outstanding. Loan Balance, and lots of other characteristics. So as an example, going back to the earlier point, I would expect fours and four and a half specified pools, which we own a fair amount, not to be all that impacted. I'm not saying speeds won't pick up on them, but they have dramatic incentive to refinance today. And we've seen a healthy pickup in those speeds. and so but while they'll have a you know stronger refinance incentive and there may be some increase we don't expect that increase to be dramatic and it should tend to burn out quicker. I think when you start looking at specified pools in the three to three and a half percent coupon that's where I think you know there'll be the most reactivity to that kind of decline. Now with respect to TBAs in most TBAs that are more seasoned in threes through fours, they'll pick up as well, but they're already fast. And the challenge will be, you know, I think where you will see some parts of the lower coupons, let's say like 30 or two and a half, will become a lot more like threes and you'll have to be very careful at a certain point in time. It will still take time because the Fed will still be absorbing the worst pools out there and the most seasoned. So you can still hide for probably a good at least six months, maybe nine months in in the brand newest originations in that coupon. But you're going to have to be careful about lower coupon TBAs such as two and a halves because they will flip very quickly or in that scenario into a prepay window. But again, that'll be manageable given the Fed's kind of purchase program and the fact that they've cleaned up the float and, you know, the other way you deal with that is, you know, obviously, you know, migrating your coupons. Chris, I don't know if you want to add anything to that.

Yeah, no, Gary, that covered it pretty well. I mean, we're already, the one thing to keep in mind, I'd say, is that we're already, you know, operating at or near capacity for lenders, you know, with around 90% of the mortgage universe exposed to, you know, call it at least a 50 basis point rate incentive. So, Everything else equal, even if rates stay here, it'll take time for the primary-secondary spread to come down. It's not going to just gap down since we're already close to capacity. But more directly to your question, clearly two-and-a-halves would be the most exposed to sort of a no-cost two-and-a-half percent mortgage rate, but we're still a good ways away from that right now.

Okay, that's helpful. Appreciate the comments. Thank you.

Thank you. And our last question comes from the line of Charlie with JP Morgan.

Hey, good morning, everybody. Thanks for taking the questions today. You noted in the prepared remarks about $730 billion in origination volumes during the quarter, which helped offset those Fed purchases. I'm wondering what your outlook is like for supply through year-end, and I'm wondering if there was sort of a A catch-up effect as the lockdowns lifted and things returned to normal, or if that pace is sustainable given where rates are?

So what I would say is, one, we really didn't see, and we mentioned this a couple times in the prepared remarks, I think most market participants had expected more of an impact from the lockdowns and social distancing in the second quarter around origination volumes, refinancing, and even the housing market. And interestingly, I think what you saw in the mortgage market was really what you saw kind of more globally across retail, delivery. The business didn't shut down. I mean, it just moved online or technology took over. and I think we saw that in the mortgage market as well. And so just first off, what I would say is that I don't think we saw much disruption, which certainly was a possibility. So taking that forward, we believe production remains high and around the current levels for let's say at least the next two or three months before likely starting to tail off as people get more used to this general level of rates. And where there is what we will say is a little bit of a catch up is actually on the demand side. I think the production will be better absorbed in the second half of the year, and we're sort of already seeing that a little in July, than it was certainly early on, let's say March and April, even with large Fed purchases, because of the fact that the prepayments probably won't be accelerating going forward. They're already at high levels, and if anything, there is sort of catch-up around reinvestment of paydowns. even at the Fed, there's catch up that sort of built in and certainly amongst many other investors as well as they've already had some very high months of prepayments and not necessarily all of that has been reinvested. So look, I think that's the high levels of production coupled with a continued Fed bid, coupled with this sort of pent up reinvestment, I think is why we don't see a ton of volatility in lower coupon prices, you know, more MBS spreads or prices, you know, as we look ahead. And again, it's also why we, you know, we see dollar rolls remaining very special.

Got it. Thanks very much for the color. I appreciate it. No problem.

Thank you. And we have now completed the question and answer session. I'd like to turn the call back over to Gary Kain for concluding remarks.

I'd like to thank everyone for their interest in AG&C, their participation in this call. Please stay safe, and we look forward to talking to you next quarter.

Thank you. That concludes today's teleconference. Thank you for calling in for today's presentation. We now disconnect your lines.