Dynex Capital(US:DX)2024-01-29 17:19Financial Data and Key Metrics Changes - The company reported an economic return of 11.8% for Q4 2023 and 1% for the entire year, with a total shareholder return of 12% for 2023 [29][27] - Book value increased over 20% from the lows discussed in the previous quarterly earnings call [31] - The company started the year with leverage of 6.1 turns and assets of $5.9 billion, which increased to $7.4 billion by year-end [10][30] Business Line Data and Key Metrics Changes - The company rotated its portfolio from approximately 50% pools and 50% TBAs to 80% pools and 20% TBAs, improving its convexity profile and locking in attractive yields [11] - The company maintained its hedge portfolio and positioned for a steeper yield curve environment, which is expected to benefit future financing costs [12][40] Market Data and Key Metrics Changes - The company noted that the investment opportunity in Agency RMBS is historic, with a significant shift in the market dynamics due to the Fed and GSEs stepping back [8][18] - The company observed that spreads widened dramatically throughout the year due to various crises, but it opportunistically added to its portfolio during these times [30][55] Company Strategy and Development Direction - The company aims to grow its business and offer its value proposition to more shareholders, focusing on ethical management and long-term returns [9][18] - The management emphasized the importance of navigating through macroeconomic conditions and government policies, especially with upcoming elections [8][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current dynamic macroeconomic conditions and highlighted the potential for lower financing costs as inflation approaches the Fed's target [15][40] - The geopolitical landscape is viewed as a significant factor affecting economic conditions, with rising nationalism and protectionism contributing to increased volatility [16][35] Other Important Information - The company reduced its general and administrative expenses by actively managing costs [32] - The loss of board member Dave Stevens was acknowledged, highlighting his contributions to the company [17][26] Q&A Session All Questions and Answers Question: Update on rate positioning and view on up-rate vs down-rate risk - Management indicated that they are positioned to benefit from a steepening yield curve and expect lower financing costs to positively impact returns [39][40] Question: Attractiveness of agency market and capital raising - Management confirmed that they see a historic opportunity in the agency market and are open to raising additional capital to take advantage of it [44][46] Question: Hedging strategy with rotation into pools - Management stated that the capital cost of using interest rate swaps is high, and their macro view drives the selection of hedges [48] Question: Benefit of rates going down to spread - Management explained that a decline in financing costs would improve total economic return, with specific figures provided for expected improvements [49][56] Question: Liquidity in funding market for longer-dated repo - Management confirmed that availability of financing is not an issue and they continue to have counterparties offering financing [88][95]