Dynex Capital(US:DX)2023-04-24 16:14Financial Data and Key Metrics Changes - The company reported a book value of $13.80 per share and a comprehensive loss of $0.54 per share for the quarter, resulting in an economic loss of 3.7% when accounting for dividends [3][4] - Hedge gains for the quarter amounted to $89 million, contributing to an unamortized hedge gain of $766 million at the end of the quarter, which has protected book value from rising rates [4][66] Business Line Data and Key Metrics Changes - The portfolio was positioned for spread tightening, which occurred in the first half of the quarter, leading to a mid-quarter book value of approximately $15.30 [3] - The company added over $1.1 billion in assets during the quarter at wider spreads, increasing leverage to 1.4x from year-end levels [71] Market Data and Key Metrics Changes - The company noted that mortgage spreads have widened significantly since late 2021, reflecting a tripling from previous lows, and expects this trend to continue until the bulk of FDIC sales are complete [57][97] - The total amount of securities to be sold by the FDIC is $98 billion, with expectations of sales ramping up to $1.5 billion to $2 billion per week [72] Company Strategy and Development Direction - The company views the current environment as a generational opportunity to invest in agency residential mortgage-backed securities, emphasizing the importance of liquidity and flexibility in capital deployment [49][75] - The management team is focused on maintaining a disciplined approach to capital management, preparing for potential market volatility while seeking attractive investment opportunities [50][62] Management's Comments on Operating Environment and Future Outlook - Management expressed excitement about the investment opportunities in agency RMBS, tempered by respect for the complexities of the global macroeconomic environment [6][10] - The company anticipates that the current period of wider spreads will provide significant investment opportunities, with expectations of tighter spreads in the medium to long term [63][97] Other Important Information - The company has preserved a significant portion of its book value through the transition to wider spreads, with book value previously at $17 in August of last year [98] - The management team highlighted the importance of transparency in investments, using mark-to-market valuations to calculate book value daily [103] Q&A Session Summary Question: Can you discuss the marginal buyer of MBS and the potential for additional spread widening? - Management indicated that lower coupon securities are becoming attractive relative to corporates, which could drive demand from money managers, but they expect periodic bouts of widening [107] Question: How does the repo market influence leverage decisions? - Management noted that the repo market is currently flush with cash, allowing for flexibility in financing, and indicated a willingness to increase leverage to low double digits if conditions are favorable [85][87] Question: What is the impact of the slow prepayment environment on leverage? - Management stated that while they carry sufficient liquidity to manage cash flows, the slow prepayment environment does not significantly affect their willingness to adjust leverage [116]