AGNC Investment Corp.

Good morning and welcome to the AGNC Investment Corp first quarter 2025 shareholder call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Katie Turlington in Investor Relations. Please go ahead.

Thank you all for joining AG&C Investment Corp's first quarter 2025 earnings call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contains 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 forecasts due to the impact of many factors beyond the control of agency. 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 AG&C'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 Peter Federico, President, Chief Executive Officer, and Chief Investment Officer, Bernie Bell, Executive Vice President and Chief Financial Officer, and Sean Reed, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.

Good morning, and thank you all for joining our first quarter conference call. Government policy actions and their potentially adverse effects on economic growth and inflation caused investor sentiment to turn decidedly more cautious in the first quarter. This elevated macroeconomic and monetary policy uncertainty led investors to initially seek the safety of high-quality assets like U.S. Treasuries, agency mortgage-backed securities, and cash over higher-risk assets like equities and corporate debt. Driven by our attractive monthly dividend, AGNC generated an economic return of 2.4% in the first quarter. AGNC's total stock return with dividends reinvested for the quarter was positive 7.8%. The tariff policy announcement at the beginning of April, however, caused volatility to increase significantly across all financial markets. With the breadth and magnitude of the tariffs being greater than anticipated, recession fears increased materially. Equity prices, in turn, fell further from their February peak and into bear market territory. Interest rate volatility also increased substantially. Over the first nine trading days of April, the yield on the 10-year Treasury moved initially sharply lower and then sharply higher. In total, over this short period of time, the yield on the 10-year Treasury fluctuated by more than 100 basis points. This interest rate volatility and broad macroeconomic uncertainty caused normal financial market correlations to break down, liquidity to become constrained, and investor sentiment to turn negative. The agency MBS market was not immune to these adverse conditions. and also came under significant pressure in early April. In spread terms, the current coupon spread to a blend of 5- and 10-year Treasury rates widened to 160 basis points, the top of the trading range over the last five quarters. The performance of agency MBS relative to swaps was substantially worse, given the unprecedented narrowing of swap spreads that occurred during the height of the market turmoil. As a result, the current coupon spread to a blend of swap rates reached an intraday peak of 230 basis points. For comparison, the widest level reached during the height of the COVID pandemic was 235 basis points for this measure. As of yesterday, this spread was about 220 basis points, still very elevated but off the wides. AGNC was well prepared for the recent market volatility and navigated it without issue. While AGNC's net asset value was negatively impacted by the mortgage spread widening, the expected return on our portfolio is also now higher as it reflects these wider spread levels. Moreover, at current valuation levels, We believe agency MBS provide investors with a compelling return opportunity on both a levered and unlevered basis. Recent trading history is supportive of this value proposition as well, as spreads historically have not remained at these levels for an extended period of time. Agency MBS also offer investors an attractive fixed income alternative to corporate debt and other credit-sensitive instruments, especially in light of the deteriorating economic outlook. For these reasons, and despite the fact that the macroeconomic uncertainty is likely to remain elevated over the near term, our outlook for agency MBS continues to be very favorable. With that, I will now turn the call over to Bernie Bell to discuss our financial results in greater detail.

Thank you, Peter. For the first quarter, AG&C reported total comprehensive income of 12 cents per common share. Our economic return on tangible common equity was 2.4% consisting of 36 cents in dividends declared per common share and a 16 cent decline in tangible net book value per share due to modest spread widening during the quarter. Quarter in leverage increased to 7.5 times tangible equity up from 7.2 times at year end, driven by the decline in tangible netbook value per share and the deployment of recently issued equity capital. Average leverage was 7.3 times for Q1, up slightly from 7.2 times in the fourth quarter. We ended the first quarter with a strong liquidity position, consisting of $6 billion in cash and unencumbered agency MBS, representing 63% of tangible equity. During the quarter, we raised $509 million of common equity through our at-the-market offering program at a material premium to tangible net book value, generating meaningful accretion for common stockholders. Net spread and dollar roll income increased 7 cents to 44 cents per common share for the quarter, driven by a higher net interest rate spread and larger asset base. Our net interest rate spread rose 21 basis points to 2.12%. This improvement was driven by higher asset yields, a greater proportion of swap-based hedges, and lower funding costs as our repo positions fully reset to prevailing short-term rate levels during the first quarter. Our Treasury-based hedges generated additional net spread income of approximately $0.02 per share for the first quarter, which is not reflected in our reported net spread in dollar roll income. Lastly, the average projected life CPR in our portfolio increased to 8.3% at quarter end from 7.7% at year end, consistent with lower rates. Actual CPRs averaged 7% for the quarter, down from 9.6% in the fourth quarter. And with that, I'll now turn the call back over to Peter.

Thank you, Bernie. Before opening the call up to your questions, I want to provide a brief update on our portfolio as of quarter end and discuss in greater detail our outlook for agency mortgage-backed securities. As I already mentioned, slower economic growth expectations pushed equity prices meaningfully lower during the quarter. In contrast, fixed income returns, as reflected by the major Bloomberg indices, were positive, with agency MBS being the best performing fixed income asset class in the first quarter, with a total return of 3.1%, followed by U.S. treasuries at 2.9% and corporate debt at 2.3%. On a hedged basis, however, the performance of agency MBS was more mixed, with spreads to treasuries generally widening during the quarter, particularly in the low and middle coupon segments of the markets. The current coupon spread to the blended five and 10 year treasury rate widened eight basis points during the quarter. Our asset portfolio totaled 79 billion at quarter end up about 5 billion from the prior quarter. The mortgages that we added were largely high quality specified pools and pools with other favorable prepayment characteristics. As a result, the percentage of our assets with favorable prepayment characteristics increased to 77%. The weighted average coupon of our portfolio, meanwhile, remained steady at just over 5%. Our aggregate TBA position was relatively stable during the quarter, although the composition shifted to include a combination of Jenny Mae and conventional UMBS in response to changing implied financing levels and delivery profile characteristics. Consistent with the growth in our asset portfolio, the notional balance of our hedge portfolio increased to $64 billion at quarter end. In duration dollar terms, our hedge portfolio composition was about 40% Treasury-based hedges and 60% swap-based hedges at quarter end. Despite the recent financial market volatility, Our outlook for agency MBS remains positive. On the demand side of the equation, we continue to believe that regulatory relief will eventually lead to greater demand for agency MBS from banks. We also believe more favorable bank capital requirements are forthcoming, which could benefit the Treasury and swap markets. Another noteworthy development in the first quarter relates to the future of the GSEs. The rapid recapitalized and released narrative that garnered significant attention at the end of last year, and that was a source of uncertainty for investors, seems to have quieted somewhat. Importantly, many key decision makers have expressed the desire for lower mortgage rates, improved housing affordability, and for the preservation of the many positive attributes that characterize today's housing finance system. There also appears to be a greater appreciation for the very complex and interconnected nature of our $14 trillion housing finance system, the cornerstone of which is the GSE conventional mortgage market. This most recent episode of Financial Market Volatility is a good reminder that uncertainty related to the housing finance system can quickly lead to meaningfully higher mortgage rates. In our opinion, the best way to improve housing affordability is to clarify and, importantly, make permanent the role of the government in the housing finance system as it exists today. If the government were to do so, the demand for agency mortgage-backed securities would increase. The capital requirement for these securities could be reduced to be consistent with Jenny Mae's securities. And lastly, mortgage rates and housing affordability would improve. Also noteworthy, taking this action would not preclude the government from choosing a different capital structure for the GSEs at some point in the future. With that, we'll now open the call up to your questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Bose George with KBW. Please go ahead. Hey, everyone. Good morning.

Actually, can you give an update on your book value? You gave the April 9th number with the pre-release, but how does it look since then?

Yeah, thank you for the question, Boze. Yeah, Bernie did not include that in her prepared remarks, but mortgage spreads did widen a little bit further from our pre-release number. I would have put our book value down at the end of last week somewhere in the range of 7.5% to 8% range.

Okay, great. And then, I mean, yesterday's spread widening, you know, would that suggest it's a little bit lower since then as well?

Yeah, yesterday was a difficult day in all the markets. Mortgage spreads widened both relative to swaps and relative to treasuries. The number I quoted was 220 basis points was sort of back to the wides we saw. But, you know, it's going to be volatile. This is the kind of conditions we are. I would also point out yesterday that while mortgage spreads did underperform considerably, again, it's not a lot of trading volume. I don't believe it's indicative of any forced selling. I believe it's just indicative of really, really bad investor sentiment. And we also saw again yesterday weakness, if you will, or narrowing of swap spreads, which continues to be a challenge. And that's what's making mortgage performance relative to swap so difficult. It's not so much what's happening with mortgages to an extent, but it's what's happening with the swap market and swap spreads narrowing like they have. There's really been unprecedented kind of moves, which I think are indicative of these currency flows and the balance sheet constraints and just lack of correlations that's going on right now.

That's helpful. Thanks. And then can you just talk about the comfort level with the dividends, just given where the mark-to-market book value is, if you can just sort of walk through the ROE math that you guys have done in the past.

Yeah. Well, let me start with the benchmark, if you will, is our total cost of capital. We talk about that all the time. At the end of the first quarter, our total cost of capital and the way we're calculating our total cost of capital is the dividends that we pay both on our common and preferred stock plus all of our operating expenses divided by our total tangible capital, which at the end of the first quarter was about $9.5 billion. And by that measure, it would say that the break-even return on our portfolio to sustain all of those costs was 16.7%. Now, given the update I just gave you, you could do that calculation and that number, obviously, that total cost of capital now based off last week's book value is probably closer to 18%. So the question is, how does that compare to the economic return on our portfolio being a fully mark-to-market portfolio? Our returns now on a go-forward basis reflect current market valuations, both relative mortgages, relative to swaps and treasuries. And when you look at it from that perspective, these are really, particularly in mortgages versus swaps, sort of unprecedented levels. So I would say on a go-forward return basis, At today's valuation levels, mortgages versus swaps, mortgages versus treasuries, the way our portfolio is constructed, I would say expected returns are somewhere between 19% and 20% or 22%. If you looked at mortgages relative to just swaps today, and I gave you a blend of mortgages versus this blended swap curve, which I like to use just to give you a full picture of two-year, five-year, and 10-year swaps, that spread It closed yesterday with 220 basis points. So a portfolio of swaps levered the way we levered them would generate a return of low 20% returns. Those are historically high levels. But going back to your question, the point of all that is that, yes, our total cost of capital has increased with this mortgage spread widening and declining our book value, but the go-forward returns still align very well with that total cost of capital.

Great. That's helpful. Thanks. Sure.

Thank you. We have the next question from Crispin Love with Piper Sandler. Please go ahead.

Thank you. Good morning, everyone. Just going back to a few weeks ago, can you discuss how you were able to manage the extreme rate volatility where 10-year yields went from about 4% on April 4th to 450 plus over the course of the next few days. Just based on the book value updates, you seem to have managed it pretty well, but can you detail how you were able to just based on positioning going into as well as active management during the volatility?

Yeah, great question. And one of the reasons why I included a line in my prepared remarks that we were able to navigate that without issue, it really goes to having the discipline to go into the environment with a really strong position. And we ended the quarter at 7.5, thereabouts, leverage rounded to 7.5. So it was maybe two-tenths of a turn higher than what we had been operating prior to the first quarter. Importantly, as Bernie mentioned, we spend an extraordinary amount of time being as efficient as we can with our capital. And so we have a really strong unencumbered cash and liquidity position. At the end of the first quarter, it was $6 billion. But importantly, in percentage of equity terms, it was 63% of our equity. That's an extraordinary amount of excess capacity. And we operate with that sort of efficiency and hold that capital unencumbered to be able to withstand these sorts of periods of volatility without having to, importantly to your question, change our asset composition or de-level the portfolio. So we know exactly what we had going into it. We had plenty of capacity to withstand this sort of spread widening. When we shock our portfolio, we always think about the adverse effect on our portfolio and what it'll do to our unencumbered liquidity position, what it'll do to our leverage position. We shock interest rates. We shock interest rates. And importantly, we never assume that there's going to be positive or offsetting correlations when we do those calculations. And that's exactly what we saw this episode. It's one of the things that made it really challenging for all market participants is we saw a breakdown in correlations. At first, we had a flight to quality rally, which made sense that investors wanted to basically reduce equity positions given weaker growth outlook and favored fixed income. And agency MBS as an asset class, as I mentioned, really benefited from that initial move in the first quarter. But those correlations broke down because we had this sort of sentiment shift away from all dollar-denominated assets. But we were able to navigate that by basically just doing nothing and allowing the market to sort of go through what it had to go through. And yes, spreads have widened further, but markets have been orderly, generally speaking, for the last two weeks. And I take that as a positive sign. I have not seen, importantly, distressed selling per se. I think we saw some position liquidations, importantly, in the swap market, particularly early on that caused a lot of unwinding of swap positions versus treasury positions. But subsequent, I think we've just seen the markets sort of fall out of favor, but we haven't seen a lot of volume behind this repricing, which maybe is a silver lining. So I'll pause there and let you ask a follow-up.

Thanks, Peter. That's all helpful. And you, in the beginning of that answer, you did mention leverage. But Can you just share your go-forward outlook on leverage and the hedge ratio? You said that you expect more volatility, and in recent years you've kept leverage pretty well contained. So are you comfortable with the recent levels you've had, or could you take it down even further, just give them wider spreads so returns could be protected even if you bring it down a bit, but just leverage and the hedge ratio?

Yeah, that's exactly right. I mean, certainly spreads at this level – give us the ability on all other things equal to be able to generate really attractive returns without taking excessive levels of leverage. So that is something obviously over time we'll evaluate. And it's one of the reasons why we went into this episode with lower leverage sort of than our historical norms, because we were able to operate with leverage in the low sevens and still generate really attractive returns. So that certainly could be the case going forward. All that said, I would not expect these spread levels to hold. So if they do going to go forward basis, certainly then we would evaluate that. But from everything that we've seen so far, I don't believe that when you look at mortgages versus swaps in particular, that these are sustainable spread levels. I think when you look at, take, for example, current coupon mortgage today, backed by the support of the U.S. government from a credit perspective against the backdrop of a worsening economic outlook, and compare that to 10-year swap rates and have that spread be about 200 basis points, that's an extraordinary amount of excess return. at 165 basis points of excess return of mortgages versus take, for example, 10-year treasuries. That's a lot of excess marginal return in a 5% or 6% world. I don't think those spreads are sustainable. But it doesn't mean that we don't stay here for a little while. It doesn't mean that we might not go wider given all of this macroeconomic uncertainty and government policy uncertainty. But we'll certainly evaluate that on a go-forward basis.

Thank you, Peter. Appreciate you taking my questions.

Our next question comes from Doug Harder with UBS. Please go ahead.

Good morning, Doug. Thanks. Good morning, Peter. In the past, you've talked about leverage levels and being confident in ranges holding. I know you just mentioned that spreads at current levels aren't sustainable. How do you think about the risk that's you know, you could, spread levels could kind of gap out further given this uncertainty before they kind of normalize and kind of how you think about managing that potential scenario.

Well, we certainly have to be prepared for it. That's, and you know, that's what we do every day is we come in and we evaluate those risks and reassess those risks and plan for those sorts of scenarios. And it is absolutely right. I mean, there's There's no doubt that spreads can move wider. Again, it's important to sort of look at the difference in mortgage performance. I think this is particularly important in this environment, mortgages versus treasuries and mortgages versus swaps. In my prepared remarks, I mentioned, take, for example, mortgages versus treasuries, five- and ten-year treasuries at 165 basis points. That is a level that we've seen on a number of occasions over the last five quarters, not particularly distressed. I talked about that being the upper end of this sort of narrow trading range. And now yesterday we sort of broke through that and got to 165 basis points. Just to put that in context, though, in September of 2023, when interest rates went to 5% and there was a lot of uncertainty about government issuance, that spread was closer to 190 basis points. That was the old range. So mortgages versus treasuries are wide to the more recent range, but still within the wider band, if you will. Mortgages versus swaps is telling a different story. And the story there is not driven by people concerned about mortgages per se. It's simply this technical that happened in the swap market where swap spreads moved so dramatically. They take, for example, in the first quarter at one point, the expectation was that swap spreads were going to widen as the government reduced regulation and particularly related to the supplemental leverage ratio. And a lot of people put trades on betting on that occurrence. At one point in the first quarter, I think 10-year swap spreads got to negative 35 or so basis points. Well, we had almost a 30 basis point move wider or narrower, excuse me, more negative. And that really is the driver of the mortgage performance. It's not people particularly concerned about mortgages. They're not. There's nothing technically or fundamentally wrong with the agency mortgage market. And eventually, people will look at that value from a fixed income perspective and say, even on an unlevered basis, you can buy a current coupon mortgage close to a 6% return, great credit profile, great return relative to treasuries, great return relative to swaps. I think money will flow to this asset class, particularly out of corporates and into this asset class. So that's one of the reasons that I'm confident that Eventually, people will look at this and say these valuation levels are unsustainable. But you're right. We have to prepare for more widening and more distress, and we do, and we are, and we'll just wait it out. Part of the reason that we're able to navigate this most recent period is having a really diversified portfolio. So different coupons, different mix of assets, high pay-ups, low pay-ups, generic pools, TBA. You have to have all that in order to navigate that and you have to have a really strong cash and unencumbered liquidity position and we have all that.

And I guess just following up on that, Peter, given the move, the volatility and swap spreads, have you or are you considering kind of changing some of the makeup of your hedge portfolio?

Yeah, that's a great question. And I put in my prepared remarks, it's about 60% from a duration dollar perspective. So when you think about it from a market value perspective, it's important to think about the mix of your hedges on a duration dollar basis. And yes, we have a little bit higher weight now to swaps. I do think that over time that a market you know, sort of a base case may be that, you know, a 50-50 mix may be the best mix on a go forward basis as a starting point. And I say that because it's important we are seeing in the marketplace to have great diversification. And that also applies from the asset portfolio as well as the hedge portfolio, because we see all these sorts of temporary dislocations that have occurred and they They happen from time to time, and they happen for reasons that nobody anticipated, like the tariffs. The same applies for having great diversification in your hedge portfolio, and I think that's sort of the base case for us is that we want to have a mix on a go-forward basis that gives us the best diversification. So the starting point may be having hedges across the curve for sure, but also having a mix of both treasury and swap-based hedges so that we're able to withstand these periods as best we can. And that's served us well this time. So I think you're right to some extent that the mix may come down on a go-forward basis.

Great. Appreciate it, Peter. Thank you.

The next question comes from the line of Trevor Cranston with citizens JMP. Please go ahead.

Morning Trevor.

Hey, thanks. Morning. Um, actually a follow up question on, you know, that your choice of hedge instruments and, and swap spreads. Um, you know, you, you mentioned sort of the unwinding of trades betting on, um, a widening of spreads in the earlier part of this year. Um, Can you maybe just share your thoughts on kind of where you think we are in that process and kind of what your general outlook is for swap spreads going forward from here?

Thanks. Yeah. So I think from a – although yesterday's spread move was substantial. There was about a three basis point narrowing in swap spreads in the 10-year part of the curve yesterday. which was a little surprising given that I felt like after the initial period, which is call it the April 6th through the 10th period, I felt like a lot of volume had been unwound on that trade. I think what we're seeing in the swap market right now is indicative of a couple of things. I think it's indicative of just generally there being some balance sheet constraints at financial intermediaries that we have come to understand. And if you listen to banks CEOs last week, they all point out that they have balance sheet constraints due to regulatory requirements. And they're asking for relief on that because they feel like they can do more. So I think that's, that's part of what's happening. And I think also it's just indicative of this, um, pessimistic outlook for U.S. dollar denominated assets, period. And it's causing people to not want to hold hard U.S. dollar assets and prefer to hold that asset in derivative form. And that's causing swap spreads to be as narrow as they are. What I would say is that it's also very clear to us, this is well telegraphed, that I do expect a change from a regulatory perspective with respect to the supplemental leverage ratio. The Fed has talked about it. The Treasury Secretary has talked about it. I think everybody agrees that they will ultimately get rid of that supplemental leverage ratio, which would benefit the Treasury market, and I think that would drive swap spreads wider. The issue with that is that it's taken longer than the market anticipated. And part of the reason why it's taken so long, just from the Fed's own words, is they did not want to make a regulatory change of significance without having the head of bank supervision, Michelle Bowman, confirmed and in that position. She just went through the nomination process a week ago, confirmation is expected in a couple of weeks. I expect that to be a catalyst at some point going forward for some normalization in the swap market.

Got it. Okay, that's helpful. And then on the capital side of things, obviously you guys have been utilizing the ATM program over the last several quarters. Can you just give an update on kind of how you guys are thinking about that after the sell-off over the last few weeks? Thanks.

Sure. We certainly have used that as opportunistically as possible. First quarter is another good example of that. We're able to raise capital very accretively from a book value perspective. As I mentioned, that went to support the growth of our portfolio. It's why we grew $5 billion. And so from an existing shareholder accretion perspective, I think that was a really good example of our existing shareholders benefiting from a book value perspective and then also from a long run from an earnings perspective. I think that same approach still holds Today at these valuation levels, certainly, as I mentioned, good time to deploy capital. So we're going to continue to approach that very opportunistically.

Okay. Got it. Thank you.

The next question comes from the line of Matthew Erdner with Jones Trading. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. Kind of as a follow-up to the ATM, could you talk about kind of the pace of deployment throughout the quarter? And it looks like you guys kind of invested in that five and a half coupon there. And as a follow-up to that, you know, where do you guys think is the best opportunity in the coupon stack right now? Thank you. Yeah.

You know, if you go back to my comments on the fourth quarter quarter, call in January, I mentioned that we had been slow to deploy capital that we raised in the fourth quarter because we were waiting for a better investment opportunity. And that at that time, I felt like the opportunities were emerging and we had begun to deploy that capital sort of around that time of that earnings call, which was January. So that gives you some perspective as to when we deployed it. And you're right. You know, our weighted average coupon on our portfolio did not change hardly at all. Maybe one basis point, I think it was 503 for the quarter, which tells you that the mortgages that we added were all concentrated around that coupon. So in the five and five and a half area, we like that part of the curve. As I mentioned, the pools that we bought had either high quality characteristics or some form of prepayment characteristics that we viewed as favorable. About a billion of that growth came in the form of TBAs. And on that point, this gets to sort of our view of value going forward. I would say that we are seeing improvement in the dollar roll carry implied financing levels, particularly in conventionals today going forward relative to where conventionals were rolling last year, really unattractive in the dollar roll market, better to finance those positions on balance sheet. That has sort of gradually improved over the course of the first quarter. It's one of the reasons why we moved some of our TBA position from Jenny Mays to UMBS in the first quarter. And on a go-forward basis, if that continues, I would expect us to hold perhaps more TBAs because of the pickup and implied financing levels. From a pool perspective, we continue to like the intermediate part of the coupon stack because it gives us You know, some prepayment protection naturally given mortgage rates now are back close to 7%. They're not there this morning, but they're, you know, 6.8%, 6.9%. So we like that intermediate part of the curve. We still have good carry there. And to the extent that we buy higher coupons and we do still like higher coupons, we would look to buy those with some sort of prepayment protection.

Got it. That's very helpful. I appreciate all the color to that.

Sure.

The next question comes from the line of Jason Stewart with Jani Montgomery. Please go ahead.

Good morning, Jason. Good morning, Peter. Thanks for all the color in the comments. A couple quick follow-ups. You know, you've talked a lot about conceptually changing the swap portfolio, the hedge portfolio going forward. Were there any meaningful changes to date, post-quarter ends, that we can incorporate for remodeling purposes?

There have not. We have not really had any substantial portfolio changes.

Okay. Thanks. And then just clarification, your 7.5% to 8% down on book was since 331, not the pre-release date, right?

Oh, yes. Yeah, yeah, yeah.

Gotcha. Okay. And then you mentioned a greater appreciation... Thank you for that clarification, by the way. Yeah, no problem. You mentioned greater appreciation for complexity of the housing finance system. Is that comment tied to the SLR change that you're expecting, or is there something more... specific to housing that you see as a catalyst to kind of get some clarity in the market?

Yeah, you know, I went into those, that sort of explanation of the GSEs because, you know, I really do think that one of the things that is emerged, and I think this is an important, when you think about the outlook for agency MBS, I think this is, you know, we're in an environment where spreads are really historically cheap. It's a great buying opportunity for But there's a lot of uncertainty around that, a lot of volatility, and a lot of unknowns because of the macro backdrop. There's no doubt about that. But on the GSE front, I think it is important to recognize that while there was a lot of noise, if you will, for lack of a better term, about the future of the GSEs, I think what is clear from some of the comments, particularly take, for example, the Treasury Secretary, where he mentioned the importance of lower mortgage rates and the importance of housing, improving housing affordability. Interestingly, he even mentioned early on after he got confirmed, he even mentioned where mortgage spreads were trading in a particular day, which I thought was indicative of his awareness and the importance of that issue to the administration. So while there may be ongoing debate about the GSEs and the ultimate capital structure. My point was that the system, the housing finance system, and the key part of it is the conventional mortgage market created by the GSEs, it is functioning extraordinarily well. And I think there's an appreciation that you can't simply just make, you know, a change that on its face looks like it's not a complicated change, but it does have far-reaching implications. Take, for example, the TBA market. The TBA market is what it is today because it trades without credit risk. And $300 billion of TBAs trade every single day. That's an incredibly liquid market that is the underpinning of all of our housing finance system. It's critical to originations. It's critical to servicings. It's critical to homeowners being able to lock in a mortgage rate 30 or 60 or 90 days forward. I think there's a greater appreciation of all of that interconnectedness today. And so while we can debate about what ultimate structure the GSEs may take, I think it's also clear that the GSEs do an incredible amount of good for our housing finance system, and that if we want housing affordability to improve, and I think we certainly do given where mortgage rates are, then We have to approach this issue really thoughtfully, really cautiously, and I think that sentiment was expressed clearly by the Treasury Secretary. So that's sort of our view. Look, at the end of the day, the PSPAs and the structure today with the GSEs operating with a strong capital position, the preferred stock agreement being outstanding, giving additional support to the GSEs, GSE is making a payment to the government. All that is working extraordinarily well. So you can still make changes going forward, but you have to preserve that core. I'll pause there.

Got it. No, that makes sense. Thanks, Peter. Sure.

Next question comes from the line of Eric Hagan with BTIG. Please go ahead.

Hey, thanks. Good morning, guys. I want to take your temperature on the prepayment environment and maybe how you characterize the level of convexity risk that you see in the market generally and how you maybe compare the level of convexity risk that we're taking in the portfolio with spreads at these levels versus the nature, the level of prepayment risk in the portfolio the last time spreads were near these levels.

Sure. Thank you. I'll get to that one second. I just want to go back to that last question about making sure people understand our book value update. That book value update obviously was through the end of last week from the 31st. It also includes our dividend accrual, so I just wanted to make sure that people understood that. On the prepayment outlook, I'll add a couple things, Eric, and then we can talk about it in greater detail. Obviously, one thing that has occurred is the rocket Mr. Cooper merger. So although the thing's equal, that's going to make the universe a little bit more negatively convex given the speed and their refinance efficiency. But just to put it in context, for example, I think from an origination perspective, that new entity will represent something like 10% of originations and 15% of servicing volume. And although the All other things equal. Rocket probably is maybe 10% to 20% faster than the universe in terms of refinanceability. So there is a little more convexity coming. But overall, where the mortgage market is today, prepayment risk is a risk, and certainly our portfolio has more call risk than extension risk. You can see that in our sensitivity. We're still a really long way away from having any significant amount of refinance risk in the system as a whole. For example, with the prevailing mortgage rate being at 6%, and for context, it's 680 or so this morning, only 15% of the universe would have a 50 basis point refinance incentive. If the mortgage rate dropped to 5%, so almost 200 basis points lower than today, the amount in the universe that would have a 50 basis point incentive is 25%. So we have a long way to go. And if anything right now, given what's happened in the market and the way the yield curve is steepening, it's actually particularly 10-year rates, 20-year rates, 30-year rates, it's actually pushing the mortgage rate even higher. So There's a scenario where prepayments become an issue, but it would take a really significant rally. From our perspective, and this is one of the reasons why I mentioned this number, in our tables, we typically only have disclosed our high-quality pool characteristics, which were 42% in the one table in our presentation. But I often referenced the other characteristics that we have in our portfolio that we value from a prepayment perspective, whether they be other geographies or other loan balances or other FICO or characteristics or LTVs. And that number, as I mentioned, is up around 75, a little more than 75%. So from our perspective, particularly in our higher coupon holdings, and this is really important, whether our 6% holdings or our 6.5% holdings, those positions in pool form have something in the neighborhood of around 95% of those positions have some sort of embedded prepayment protection that we value. It's not to say that they're never going to prepay, but there are characteristics that we really value. So the way we're managing that prepayment risk in this environment is really looking at those underlying characteristics in a much greater detail than just, for example, a high quality loan balance perspective and making sure that we have significant protection on our entire portfolio. So I'll pause there. I'm going to let you ask a question.

That's great stuff. I appreciate the detail. I want to ask a maybe more general question related to the mortgage market and the sensitivity that you guys see to margin calls with respect to levered investors like mortgage REITs potentially being forced to sell assets or raise liquidity in certain shock scenarios and whether you think that could reverberate or contribute to to wider mortgage spreads and how meaningful you guys think that risk is in the market right now?

Well, I don't think any of that had anything to do with the existing repricing in the mortgage market. Absolutely did not. I did not see any of that. Haven't heard about anything like that. What we did see, and this is often the case, this is sort of the world that we live in. We know that the predominant flow in the mortgage market in particularly, is passive money, right? And that's both good and bad in that when fixed income flows are increased or, you know, picking up, we're seeing demand for money managers to buy mortgages. And conversely, when all the markets, when I talk about all the markets, when I talk about the bond market and the equity markets, everybody moved to cash or wanting to take risk off the table, what we saw early in April is bond fund redemptions. And so the predominant flow that we observed that did have an impact on mortgage valuations was money flowing out of bond funds where they're just simply raising liquidity for anticipated redemptions or actual redemptions. That quieted down from what we've observed the market. For example, last week came under a little bit of pressure on Thursday because we had a long holiday weekend and we had a relatively high origination volume day ahead of the long weekend. So little things like that have pushed the market. That's not unusual. But overall, I have not seen anything about forced e-leverage, particularly when you look at the REIT community. And you can look at all of the disclosures. All the REITs are in really strong positions. And you look at their liquidity positions, you look at their leverage positions, you look at their portfolio. So I don't anticipate that being an issue.

Got you. Thank you. We appreciate you guys. Thank you.

The next question comes from the line of Rick Shane with J.P. Morgan. Please go ahead.

Hey, Peter. Thanks for taking my question. Good morning. Actually, Jason asked the question I wanted to ask, and he asked it far more articulately than I would have, so thank you.

All right. Thank you. We have one more question.

The next question is from the line of Harsh Himnani from Greensteak. Please go ahead.

Good morning, Harsh. Thank you. Hey, good morning. So you sort of touched on swap spreads to mortgages widening a lot more than spreads to treasuries. And maybe on the flip side of that, if I heard you correctly, I think you mentioned that the swap-based hedges might come down or that's what you're planning to do. Can you talk through that decision on how you're weighing – on the one hand, sort of playing offense because these spreads look unsustainably high versus, on the other hand, being more diversified and more defensive. So could you walk through your thoughts on the decision-making there?

Yeah. No, you're right. I mentioned both those factors. And I also mentioned that we have not made any change to our swap portfolio. So important from that perspective. So that would be something, when I answered that question, I was more referring to over the long run, that may be something that we factor into our overall risk management strategy is sort of from the base case that desire to have a more balanced position between swaps and treasuries. But we'll have to wait and ultimately have the market settle and volatility to come down and make that determination. But in the short run, you're 100% correct that there is much better carry on mortgages versus swaps, and we'll try to take advantage of that. That's it.

Thank you.

Sure.

Thank you. We have now completed the question and answer session. I'd like to turn the call back over to Peter Federico for concluding remarks.

Again, thank you, everyone, for participating on the call. Thank you for the questions. Although the market is volatile, as I mentioned, our long-run view continues to be very positive for agency MBS as an asset class, and we look forward to talking to you again at the end of the second quarter.

Thank you. Thank you for joining the call. You may now disconnect.