Q1 2020 Earnings Call

Good morning, and welcome to the first quarter 2020 earnings conference call for work at all the capital. This call is being recorded should they make first 2020.

This time the company likes to remind the listeners that statements made during today's conference call waiting to matters that are not historical facts or forward looking statements subject to the safe Harbor provisions of the private Securities Litigation Reform Act of my 295.

Listeners are cautioned that such forward looking statements are based on information currently available on the management's good faith belief with respect to future events and are subject to risks and uncertainties that could cause actual performance or results could differ materially from those expressed in such forward looking statements important factors that could cause such differences are describing the companys files with the securities.

Exchange Commission, including the company's most recent annual report on form 10-K.

The company assumes no obligation to update such forward looking statements to reflect actual results changes in assumptions or changes in factors affecting forward looking statements.

Now I'd like turn the conference over to the Companys, Chairman and Chief Executive Officer Mr. Robert <unk>. Please go ahead Sir.

Thank you operator, good morning, everyone hope everyone is safe and it's been not been adversely affected by the pandemic called at night Pete.

Hopefully by next quarter's call this will be largely behind us.

However, it was all about cobot 19 this quarter.

I'm not going to fall the prior practice and goes through the slide sequentially.

The events or the quarter don't really lend themselves to doing so so please bear with me as I flip around slightly.

Instead of looking to do is focused on six main points and use the slides as needed in an effort in any event will not covered all the slides.

Just focus on the ones needed to support my points. The six made points I'm going to focus on our one.

Briefly go over what happened in Q1.

Definitely did well I'm not too much second I'm going to pause and just kind of revisit our investment strategy and see a few words about our strategy versus that of other mortgage reach try to draw. Some contrast.

Third I'll come back and review our results are not starting our results, but what we did as these events unfold it during the quarter.

And then I'll go over our financial results and then the focus of the call hopefully be our positioning where we stand today.

We look at the world going forward and our expectations for rates speeds in spreads and that of course will open the call up the question so to it.

I guess, we could start on slide seven that's as good as any it just shows you what happened to the treasury curve in us dollar swap curve.

And the first point when it makes is that the financial as the crisis unfolded, the financial markets, where the place where his first Oh took place on the stock market and then clearly the fixed income markets.

Reacted very quickly is the scope and that demand or the magnitude of the steps needed to contain the virus became clear and the effect of the economy.

Was very obvious it was going to be quite dire.

And so the first thing that we saw was a demand for cash and liquidity. This was driven by people anticipate and using the jobs businesses, losing revenue investors seeking to protect against losses and so there was a.

Rapid rushed to build cash balances. This in turn caused a lot of de leveraging on the part of levered investors or even in other asset managers that aren't lever just redemptions and so we saw a huge <unk> a rush upsells that took person. This was mainly mid March and as you might expect the markets. They were impacted first.

The most liquid or the markets that were in possible gain positions or at least the smallest losses. As a result of impact was the first I mean, we felt in treasuries and agency mortgage backed securities.

This selling then of course trigger for more selling and more de leveraging and forced selling to meet margin calls.

So they go to slide 10.

During the second to get there and I think on the top left of this slide it kind of paints a nice picture.

Well and before I do that just one final word on slide seven mean that it's interesting to note that the both curves in the case or the Oh, gosh treasury curve or the swap curve essentially all rates are below 1% most rates are at all time lows.

And then if you look at slide 10, you can see it is the agency mortgage market and these are just PVA prices over the course of the corridor and they were gradually trending up but even with rates falling in March TB prices actually went down.

The performance of TV, a mortgages versus hedges couldn't have been worse, we had days where the tenure treasury was up three quarters of a point and start mortgages were down three quarters of a point.

So obviously these liquid markets, where the source of most selling and on the slide on the right. We show a pay ups for spec pools and these of course collapse.

Oh.

Most high quality spec pollstar traded modest premiums from basically record highs as you can see on the chart.

And so given the magnitude of the significance of these two markets.

To the financial system the fed intervened.

Very quickly, especially in three steps.

After usually lowering rates on the third of March on the Fiftyth. They take more drastic steps they lowered the effect of fund rates. The range due basically this year old bound the effect of zero bomb zero to 25 basis points.

And they announced asset purchases 700 billion 500 billion, which would be treasuries and 200 would be an agency mortgages. So.

So again this was a on Sunday afternoon, They announced this march 15th.

End of that week. It was very obvious that this was not enough.

The fed would come into the market and offer to buy securities are they would be met with offers to sell many times greater than what they were looking to buy and it became clear that more was needed.

Not really by Friday, the markets were down there seizing.

Became very difficult to sell assets on Monday morning on the 23rd of March the basically the fed enough that we're going to buy or whatever it took to stabilize these markets and if you look on page 10, you can see that the case of TB age the market quickly react to Oh, we they started out with very large asset purchases well over 100 billion per week.

Makes sense paper dolls, they're running at about eight or 9 billion per week now.

But importantly, they announced this week during their meaning that they are going to pledge to support these markets and due basically all that's needed going forward and so you can see all at the end of the date for the mortgage market. We ended up with very decent returns.

At this point I'd like to pause and just kind of talked about orchids investment strategy really in contrast to our peers.

The agency market is obviously, a very large market second or third largest market in the world and orchids. Since inception has only been an agency meat, but more specifically even within the agency space, We don't buy agency CMBS or multifamily.

Very strong focus on pass throughs very few Shia most typically weve use derivatives iOS and inverse iOS in the past less so today, but a very narrow slice of the agency market really it's mostly spec pools.

Fannie Freddie and even very little Ginnie Maes for that matter. So this has been our our focus all along it's a very narrow slice of our very deep market and it made it was meaningful.

Given the events of this quarter, so now I'm going to bounce again around I apologize going to go to slide 13.

Slide 13, just shows the components of the aggregate index.

On the bottom the page we show up 19 2019 on the top was Q1.

Very sharp contrast here in 2019 was all about what we call disc on risk appetites for large stock markets were making new highs throughout the year. The trade War ended and if you look at returns across different sectors agency MBS had a decent return the lag meaningfully all the higher forms of.

Credit investment grade credits emerging marketing investment grade high yield and of course equities in sharp contrast of the first quarter 2020, just the opposite is true and agency mortgages did very well with a positive return.

If you'll turn to slide 30, it's in the back it's one of the append to seize.

This is data that we get from BAML and on the left hand side. It shows securitized products returns and their sorted by their total returns for 2020 and I don't want to dwell on this slide for long, but what I do want to point out if you look at the top left the total return in the first column US treasuries were 8.8% mortgage agency work.

Which is where third there are only three categories that had a positive return and if you look at the other sectors at a fixed income market wasn't a negative but also very meaningfully so medications double digits.

So.

The niche the orchids has carved out for itself in we've been investing in all our since the beginning has been very beneficial for us.

This allowed us to others tight focus really is what allowed us to suffer much less book value erosion in most of our peers and also to recover quite quickly once the fed intervened.

Nobody that but even though we were able to we did for we've sold assets and reduce the size of the portfolio. The nims in the market net interest margins available today are very very attractive returns on equity or a very compelling mid teens, if not higher and even with a slightly smaller portfolio.

Once we've realized the full benefits of our lower funding costs, our earnings could rebound back to where they work, but I'll speak to that more a little further in the call.

Now my third point, which is basically just to go over the we did as these events unfolded.

As they unfolded our focus became very much on two things basically maintaining our leverage ratio at a reasonable level into our our range off eight and half Tonight and have percent and very importantly, maintaining adequate cash and liquidity.

The first steps, we took were to reduce our hedges, we reduced our hedges meaningfully.

As rates rally very quickly.

It became very apparent to us that as more businesses and state shutdown the economy basically shut down as well the outlook for the economy, both domestic and globally was very obviously very dire. So we expected rates to stay low. So the first thing we did was to sell reduce our hedge positions to reduced.

The margin calls associated with those.

Over the course of days not weeks as asset sales grew in magnitude frequency became more distressed.

No. Its is a distress would be early settled T plus one two plus two even assets trading on weekends.

Asset prices collapsed as expect full pay ups.

As I mentioned the performance of the asset class versus hedges was probably the worst we've ever seen and of course, you would expect margin calls increased and repo Counterparties became very the Anx was high.

Many reach of our peers, who had exposure to credit we're not making margin calls added grace medications had entering new forbearance agreement agreements with their counterparties and so this level raised a level of banks amongst our repo Counterparties and then this isn't a side as a byproduct of financial crisis.

Since 2008, most reach today operate with more raise which has really.

Advantageous language for the seller and that is that they are the final arbiter price discrepancy. So when the margin calls came in it was much more challenging to fight these margin calls.

So in order for Orkin, we did that was the backdrop. So what did we do so to stay ahead of every all these developments to maintain our leverage ratio in the range. We wanted to be in and to have plenty of cash to me potential margin calls we began to sell assets on the week of March 16th.

And we completed all this by the end of the week, we sold it that week about $1.1 billion of mortgages, we realized losses of about 30 million.

We are sales were focused on lower pay up specified pools or faster paying bonds and the reason. We did this is two reasons one with spec pay ups collapsing towards PVA. Some cases through GBA, we're selling the bonds, where we would realize the smallest loss on sale, but also realizing that next.

We would have paydowns in margin calls associated with those so we wanted to rid ourselves of any obviously fast pain bonds.

But to summarize what we did throughout this is I want to make three main points. One we satisfied every margin call work. It did not Miss a single margin call and in fact once we got Paydowns on the 25th of March were able to maintain our unrestricted cash and unencumbered assets in proportion to our total assets our equity it.

Basically historical ratios. So we were very comfortable with our cash position and then finally I just want to make.

Point that all sales were initially by management and no case was any sale of any asset triggered by a counterparty.

So we everything was done at our discretion.

Now I'd like to go over our financial results. If you will slow turning to slide four please.

Okay.

For the quarter ended March 30, Onest 2020 work it had a net loss of $1.41 cents per share.

Earnings per share of 27 cents positive, excluding realized and unrealized gains and losses at on on RMBS and derivatives, which includes net isn't it net interest income on our interest rate swaps. We do provide a reconciliation of this on page 31, which I'll get to in a moment.

With respect to unrealized and realized gains made a loss of $1.68 on these instruments, both assets and derivatives. Our book value per share at March 31st was $4.65, a decrease of $1.62 or 25.8% from $6 in 27 cents since the end of the year.

While 31 19.

In Q1 2020, the company declared and subs, we pay 24 cents per share in dividends since our initial public offering we have declared $11 in 16 cents in dividends, which includes five and a half sense declared in April.

Our economic return for the quarter was negative dollarsthirty eight or 22%.

As I mentioned when the fed intervened.

Our market has recovered quite quickly that is carry on into April and all through the end of April and through the 29 from April.

Our book value is up to about $5 in 14 cents, plus or minus which represents a return or an increase in book value of 9.4% to 11.6%. So the market has recovered quite quickly.

Now I'd like to turn to our positioning going forward. So we describe what's happened in March and everybody knows quite dire. So the question is what do we do and how do we look at a future from here.

First the details our capital allocation is now 88.2% pass throughs.

This is a little under 80% the quarter.

End of the previous quarter and actually between 60, 70% over the prior few years before that.

Pass through allocation is almost all specified pools.

With a large biased to the best forms of call protection.

We reduced our exposure to Cmos and our Io and inverse Io positions have been reduced in the case of the inverse iOS eliminated.

Now I'd like to go to slide 21.

And this is just the details of our portfolio as it stood at the end of the quarter.

It does not look meaningfully different than the ended the year a few points I want to make we've basically shifted down and coupon and remember this is a smaller portfolio. So its 2.9 billion pass throughs versus 4.1.

We did shift down in coupon slightly some by just selling more higher coupon assets and lower the weighted average coupon is down a few basis points to live under 3.9, our greatest concentration is now in three and a half securities that represent 44% of the portfolio that's up meaningfully from 31% at the end of last year.

On the allocation to force.

For the half's was reduced in the case of fours.

Almost reduced by half and four and a half.

Slightly the allocation to five is not change meaningfully and we did as I mentioned cell C. Malls, we had a little under 300 million. It ended the year that was reduced to 173 million.

And the.

Assets sold there were lot of fast paying Cmos.

Slide 22.

As of the details little more granular detail on our specified pools and this was a slightly different presentation that we've shown before what we show on the left column of the types of pulls all 85, K Max loan balance 110, 100% New York loans in 150, K., we what we call. These.

Higher payout or higher quality specified pools, and then other specified pools with less call protection slightly larger loan balances high LTV FICO and so forth the point I want to make as we have 86.4% of our pass throughs are in very high quality protection high quality.

Specified pools, what I call protection and almost nothing in the generic bucket, which would be kind of TV or TB like that was as of quarter end.

Since quarter end, we've actually added to the portfolio approximately two thirds of a turn of leverage and what we did there was add very low pay ups specified pools and the reason here. This is somewhat of a defensive step if you recall when we talked about our what we did as the crisis unfolded, we sold lower quality pay up pulls just.

Because they traded closer to TB and we're trying to minimize the losses on sales basically would just replenishing that bucket.

Some of these assets a very de Minimis pay ups. Some form of call protection that may last a few months, maybe a quarter too but in the event of.

Return of the terminal on the market. These are assets it can be sold.

Close to TB levels will not us incurred much of a loss.

With respect to our hedges, how we position if you go to slide 26.

We have a summary of our hedge positions.

The top left shows our swap agreements all we do have one swaps in place we meaningfully reduced our eurodollars exposure and then of course, we have one final position and Treasury futures.

The notional amount of all these equals approximately 54% of our 331.

Borrowing balance on funding balance.

We'll probably look to build this up slightly going forward all as volatility and the rates market has come off actually it's pretty much down to levels. We saw before the crisis unfolded, while we look to use swaptions.

But just.

Just to draw a few points here. Another reason that would the hedge positions of changes, we really expect especially funding rates to stay near the zero bound for quite a while at least through the end of the year.

You never know how the economy is going to unfold nobody really knows what's going to be on the other side of the pandemic and how much that how quickly to cover the economy will recover we expect funding levels to be very low at least through the end of the year.

Intermediate and longer rates.

May drift slightly higher others to kind of balance has to be drawn out between the treasury, which is going to be selling very large quantities of treasury notes in bonds versus the fed which has been purchasing them I suspect that the treasury is going to issue more than the feds going to buy so we may see some slight increase in.

Longer term rates, we don't expect its beetroot dramatic.

And as a result, we make using swaptions to protect movements on the long end makes a lot of sense of the absolute levels of rates are low in the.

The.

Volatility is also low so we think it's an attractive way. We also of course still have some iOS protect us.

With respect to our expectations going forward as I said, we expect low end rates.

To be quite low for the time being if you go to slide 27.

Slide 27 shows our interest expense by month. So it's more granular this was not quarterly data its monthly going back at the beginning of last year and we provide this granularity just kind of to show you the trend and you can see that.

Interest expense in pennies per share per month.

It has been trending down it peaked in the spring of 2019 to 15 cents per month per quarter looking at the most recent data for January February March rates have come well off of their.

Hi, guys in the mid to high 2% range and our interest expense was between 25 in 26 cents per quarter for the quarter 2020, So this quarter.

As our repos roll off and we realize the benefits of the feds rate cuts. This number could drop to three to four cents per quarter. So a meaningful reduction however.

The portfolio has been strong as well and the revenue side on the assets will probably be down.

A fair amount as well the key here the wildcard in terms of our dividend performance going forward is going to be driven by speeds.

Very very high speeds result in high premium amortization that of course reduces our earnings and then of course the opposite is true speeds are slow. So that's why we spent the time going through our positioning because what we're trying to do here is to try to protect ourselves as much as we can from speed. So two with what do we think about screen.

Needs going forward, we've already discussed how we position for that if you go to slide 14.

I'll give you a second to get there.

There are three charts on this slide the top left just shows the refi index versus mortgage rates in this case the mortgage rate.

Is the Red line and as you can see it made a.

Essentially an all time low earlier this year in his sensing and since quarter end has come back down to that level. So rates are very low and of course, the blue lines, the refinance index and its course spiked.

Well above actually 6000.

But as you can see it's come off some so the questions why is this and what does this mean going forward. So.

With respect to the crisis. The pandemic, it's had an impact on two things one is the loan origination process. So whether its social distancing shelter in place. This is being clause that just impedes the ability for people to go through the process of looking for a home or refinancing and actually closing alone doing it.

Appraisal and so forth.

And so that probably explains and if you look on the right hand side you see this is the spread between the primary and secondary mortgage rate you can see it's very elevated.

Much higher than it's been for quite some time and this reflects the fact that.

Mortgage originators are capacity constrained it is there.

Difficult time dealing with the applications they're receiving.

And the second effect of the crisis is the loan approval process and of course is the economies. We can we know that.

Unemployment claims initial unemployment claims over the last six weeks or in excess of 30 million.

Next Friday, we get nonfarm payrolls that number could be north of down 20 million. So that impedes borrower's ability just approach to get approved and of course underwriting standards are becoming tighter.

Recall as a result, the financial crisis, many times when bar was faced difficulty in foreclosed upon.

The new regulations are such that a lot of the burden is on placed on the.

Issuer of the loan in their assessment of the borrower's ability to make alone. So as a result to become somewhat gun shy and underwriting standards are actually tighter.

So these two forces are going to offset what would otherwise be a very very high refinancing environment. We're just driven by the absolute level rates.

One final point, if you look at this bottom chart. It just shows the re Fi index versus the percentage of the mortgage markets in the money and as you can see the percent of the market. It's in the money is in a multi year high yet the refi index is well off its high so.

Bottom line the way we look at it.

Rifai activity expected to be high.

In the next few months it may be negatively affected in other words be lower than otherwise just because of this coded 19 effects, but eventually as the economy recovered speeds, which should be quite high.

The next I'd like to say few was about 23.

This is an addition to the way we look at speeds, which have just be straight CPR.

What we look at here two things the Orange line is just the level of the 10 year treasuries and you can see its 67 basis points, even lower today. The green my kind of is a representation of our paydowns in dollars expressed as a percentage of the unpaid principal balance of the portfolio.

Ill and since it's a percentage it kind of adjust for the size of the portfolio, which varies over time and as you can see when rates rallied starting late and really in late 2018.

Speeds became quite high that's when we shifted the focus of the portfolio to much more call protection higher quality spec pools and as you can see our pay downs have come down meaningfully in fact, our portfolio. The past few portfolio prepaid at less than 10 CPR in the first quarter and in April which was released earlier this month it did not increase.

Roughly so we are positioning ourselves to protect against speed staying high for the balance of the year in combination with after the extent were successful.

With lower funding costs positions us well, we think going forward.

Let's see what else.

So us final point I would like to talk about his spreads.

I don't have a slide per se here, but if you look at mortgages at a common measure would be the current coupon spread to the 10 year or the 510 years blend still at very attractive levels not at the wise. We saw in March on the case or the spread to the tenure at reached 157 basis points. It's currently around 90, that's been is tight.

It is the mid seventies.

You can look at it versus the 510 blend you get the same kind of story Andy event mortgage spreads are still reasonably attractive, but given funding costs agency mortgage backed pass throughs off offer very attractive returns going forward.

As I mentioned, the our lease on these investments are between 15, even the very high teens. So we've already seen a fair amount of book value recovery spec pool pay ups have come back.

But going forward, even though we did have to reduce the dividend last month just in reaction to the developments in March.

Theres the potential for.

Our NIM to re expand and.

We look forward to trying to take advantage of our ability to protect against speed and maybe see some upward movement in.

In the dividend going forward, but it's too early to tell.

And finally, one other point it is make this with respect to the asset class.

Generally how mortgages are going to perform in terms of how much tightening we see it's really going to be a function of how we do versus comparable asset classes like investment grade high yield and CMBS and so forth. So.

For now it's been doing quite well this month and we hope that continues.

Operator that at the end of my prepared remarks, we can now open up the call for questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone telephone. If your question has been answered you were somewhat yourself from the Q. Please press the balance sheet.

Our first question comes from Christopher Nolan with Ladenburg Thalman.

Hey, guys.

Hey, Chris.

Overall will.

Hopefully help you as well.

Two in front here, although my dog is sort of.

The more demanding than ever.

I have three dogs.

Pretty noisy around minus.

Bob leverage the leverage ratio.

Calculations about 9.3, or so which is relatively high mostly due to lower equity.

Are you guys looking to raise equity or you look into lower level, where are you thinking in terms of Unlevered front.

Well that Youre right. It was 9.3, but remember we got a lot of book value back in the month of April So and we did add some assets, but at the effect of that it's actually to bring it down.

Book value as we say is up in over 10% through the month of April.

So that in of itself brings our leverage down.

Assets that we acquired on net probably it's even probably still down slightly Ares capital raising obviously, that's in the question given where the stocks are trading.

But investment opportunities are very attractive.

And even though that's this is in addressing your question per se. When we look at say for instance, repurchasing shares do you want to sell assets. The bird buyback shares two points on that one asset prices are still recovering so that makes me somewhat hesitant to sell a lot of assets just because I think they have upside pricewise.

And to the investment opportunities are so attractive right now.

Who knows what the future holds but everything that we're seeing and hearing makes us think that our funding cost is going to be in the range of 25 to 30 basis points on the pass your portfolio.

And even with yields in the high ones low twos, that's a very attractive NIM.

And if you can contain speed. So those are very attractive returns so.

While capital raising isn't on the immediate horizon, if the opportunity presented itself it would be an opportune time various capital.

Great.

Given that you are experiencing higher investment spreads assuming no change in leverage.

Thinking about in terms of equity returns for the base.

Yeah.

Oh, they like I said.

Mid teens very very attractive.

And we know who knows I mean, I think there's a one wildcard. It's we seeing a lot of states reduce or eliminate restrictions. So if we would have a relapse.

And on the markets would get thrown back in the turmoil that could obviously change these but absent that.

It should be a very attractive year from this point forward. Obviously, the first quarter was quite challenging sure final question turning to pre pays a lot. This turns on the ability of people to get mortgages in the first place and given that the government.

Do anything and everything to get the economy moving do you anticipate where you can see regulatory changes.

Almost like.

Community Reinvestment act by the banks and the Ninetys where.

They lowered standard relative to come in the past for people to get mortgages.

Do you think we can return to that.

So would that have a negative effect on pre pays for you guys.

Well two things one we they've already done a lot in the forbearance trial program out of the cares Act allows borrowers to.

Make payments for up to six months it can actually be extended 12.

A big concern that cause was obviously service is having to advance against those are the FHLB they announced that they would limit the servicers obligation to advance the four months, which is a big point for them in terms of liquidity on that point on.

The Gses would advance importantly, the Gses also said that they would keep the loans in the pool.

Through the end of the forbearance period now at the end of that to the extent these loans in the borrowers are unable to recover you could see them enter.

Or stay in default effectively in which case they would have to be bought out. So you could see a spike in prepays, but at the end of the financial crisis in the aftermath to that there were a lot of steps put in place in terms of remediation steps that are mandated that have to be taken to avoid.

Borrowers, losing their homes and so the steps have been laid out.

This case I suspect, it's somebody can't make a payment for 12 months, but probably not going to be able to recover they're going to be thrown into the modification pull in which case. They will see they'll go through the modification process that alone will be taken out of the pool and they'll either have some principal reduction rate reduction whatever it takes to get the loan payment down to something they can afford.

Short or are they ultimately move.

Fault, but lot of Thats already in place and the immediate effect for us its fix it they cannot make their payment will still receive principal and interest. So it will mute prepays with a caveat that you'll probably have a spike 13 months or 14 months from now great. That's it for me thanks guys.

Yes.

Again, ladies and gentlemen have a question or comment at this time. Please press the star than the one key on your Touchtone telephone.

Our next question comes from Jason Stewart with Jonestrading.

Good morning, and hope you do hope you're doing well wanted to add one thing before question great job going through what was it really difficult time so.

This has been tough to watch, but nice performance.

Thank you.

The question, Chris asked most of mine on tabs on spec pools, if you think through your view on Prepays.

Do you think that we see it relatively quick recovery and pay ups or is this something that.

Perhaps sticks around these levels and we wait two or three quarters until there.

Clarity on access to mortgage credit.

Hi, This is hunter.

Yeah, we.

The guys I talked to and transact within the spec pool market theres sort of a joke around that we've seen a V shaped recovery in spec pool pay ups and.

So yes, they recover quickly I expect them to continue to recover.

My outlook is very positive on on on pools, which seem even some of the reach that we're doing crazy things like selling on a Sunday afternoon have been in and.

Yes.

A very large appetite for adding specified pools.

Dollar roll markets make it very easy to hedge these things.

You can be longer one cash flow in short something that's very very similar and.

Not have a lot of mortgage basis risk on the books in in some cases, even get paid for your hedge.

So.

Yes.

Short answer is yes.

They have recovered quickly and I expect them to continue to recover quickly at March March cycle. They were very very high of course, those collapsed our little picture in the slide I apologize, if it's not that great but.

They have come back 80, 590% of what they weren't they would be they should be higher because rates are lower right.

So that could potentially go through those levels next week, we'll get the auction cycle.

And I would expect them to do very very well not forget.

Refinancing the most recent month were up surprisingly.

Higher than expected very meaningful jump last month.

So when people grapple with how is speed to evolve over the next few months you have two forces working against each other one is just absolute low level of rates in the second one as these impacts of the pandemic, which tend to mute revised.

It looks like for now that the former is seeming to win out most of the street expect speeds to increase again next month.

We'll see what happens in June and July but.

Everything that's happened so far has tended to support payout.

Calculations and then as hundred mentioned the roll market into higher away from the production coupons those are mostly negative.

So it makes it very easy to hedge so.

I would not expect spec pool pay ups to do anything would be very strongly supported.

Moving forward, Yes, one final point on that is.

Remember that.

The fed is.

Since since they step down and got involved in this crisis bought 585 billion dollars' worth of the worst quality mortgages, so that puts demand on the goods.

Shops, everyone else into that camp of looking for a higher quality assets that defense not consuming yes.

That's a good point and then on Christmas question about.

The answer five on repurchases of the stock relative to putting new capital to work your mid teens I'm or me sort of is just levered cash on cash doesn't include any appreciation from base is tightening et cetera.

So one is that correct and then to how does that change going forward relative to protect in stock.

You mean that that does change.

Well you're right. It doesn't include that sell the.

I think the assets have room to appreciate a nice we've said I think that you could see pay ups go through the levels. We saw in March so.

Selling assets to buy back stock, even though we're trading at on where we're training that's very moment, but somewhere in the eighties percentile book value, which is still big discount.

Still those assets are going up in value plus the income generating potential of them I think those returns all in actually higher I'll try not to say those things on calls because then if it doesn't happen people hold it hold me to it.

But they look very attractive we typically when we trade less than 90% of what we want to buy back this might be the exception where on the returns on the assets both existing and from an income enhancement potential are just too attractive.

I mean as evidenced by the fact that we've put in our press release last night that.

We thought our return was somewhere in the.

10% to 12% range for the 29 days that we mix.

The quarter that we've been through so far so that.

Makes a pretty sharp.

Justification for keeping the cash in the mortgage portfolio as opposed to buying stock back at 10 or 15.

Point discount to book.

Understood understood. Thank you for taking the questions.

Thank you.

And I'm not showing any further questions at this time.

Already operator, thank you thank everybody for taking the time to join US as always if you have other question do you happen to catch the replay you can reach us in the office.

The number is 772 to 311 400, the happy to take your calls otherwise we will talk to you at the end of the second quarter everybody be say thank you.

Ladies and gentlemen, just conclude todays presentation. You may now disconnect have a wonderful day.