Q1 2020 Earnings Call

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Excuse me, ladies and gentlemen. This is the operator today's conference is scheduled to begin momentarily until that time, you'll mines will again be placed on music cold. Thank you for your patience.

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Good morning, ladies and gentlemen, thank you for standing by into welcome to the Ellington residential mortgage reach 2021st quarter financial results Conference call.

Today's call is being recorded.

At this time, all participants have been placed on a listen only mode and the floor will be open for your questions. Following the presentation.

If you would like to ask a question at that time. Please press star one on the telephone keypad.

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Lastly, if you should require any further assistance. Please press star Zero you just now my pleasure to turn the floor over to Jason Frank Deputy General Counsel in Secretary, Sir you may begin.

Thank you and welcome to Ellington residential its first quarter 2020 earnings conference call before we begin I'd like to remind everyone that certain statements made during this conference call may constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements are not historical in nature.

As described under item one a over annual report on form 10-K filed on March 12, 2020 forward looking statements are subject to a variety of risks and uncertainties that could cause the companys actual results to differ from its beliefs expectations estimates and projections. Consequently, you should not rely on these forward looking statements as predictions of future that.

Statements made during this conference call are made as of the date of this call in the company undertakes no obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise joining me on the call today, our Larry Penn Chief Executive Officer of rough Ellington residential Mark Tecotzky, Our co Chief investment Officer, and Chris Smart enough, our Chief Financial Officer.

As described in our earnings press release, our first quarter earnings Conference call presentation is available on our website earn read dot com.

Comments. This morning, we'll track a presentation.

Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation with that I will now turn the call over to Larry.

Thanks, Jay and good morning, everyone. You appreciate your time in interest in Ellington residential.

The month of March will be remembered as one of the most challenging environments ever for leveraged mortgage portfolios.

Cobot 19 pandemic and the associated measures to contain the pandemic led to extreme volatility and severe dislocation in virtually all financial markets.

Economic activity twice as countries around the world implemented social distancing restrictions.

Unemployment claims surged consumer spending plummeted and GDP growth rates turned negative.

In March equity sold off across the globe yield spreads on most fixed income assets widen sharply and a flight to safety drove record low yields on long term U.S. treasuries.

Portions of the yield curve inverted and interest rate volatility searched.

On slide three you can see the extraordinary quarter over quarter declines in treasury yields.

Repo financing stresses alongside a drop in asset prices severely reduced liquidity and profit for selling across virtually all credit sensitive fixed income asset classes and the residential mortgage market was not spares.

The selling pressure with severe even in perceived safe havens like agency RMBS.

By mid March between the heightened interest rate volatility and the ongoing flights or the safe Haven of U.S. treasuries yield spreads on agency RMBS has skyrocketed to levels not seen since 2008 2009 financial crisis.

In response to the Federal reserve slashed short term interest rates nearly to zero.

Injected liquidity into the repo markets launch several credit facility similar to what implemented during the financial crisis and stepped in with unprecedented levels of quantitative easing.

All of which provided meaningful support, especially to the more liquid sectors of the market.

The U.S. Congress passed three rounds of stimulus packages during March culminating in the two trillion dollar cares Act on March 27th the largest emergency spending bill in history.

These actions, where mirrored by central banks and governments around the globe and the rollout of stimulus programs continued into April.

As the federal reserve deployed its full crisis playbook, we saw was in effect almost a full market cycle compressed into just a few weeks.

U.S. equities bounced back sharply from their March 23rd lows as what had been a 34% dropping the S&P 500 in less than five weeks was immediately followed by an 18% rise in just three days.

The federal reserves injections of capital East liquidity stresses and yield spreads in the sectors targeted by the federal reserves asset purchase programs tighten sharply, particularly in agency RMBS, which recovered strongly during the last two weeks of the month.

Take 30 year Fannie Mae Force for example by some measures LIBOR option adjusted spreads on Fannie Mae fours after reading, reaching their widest level since the financial crisis tightened it an astounding 140 basis points between March 19th and March 31st.

In fact, given the persistent high levels of interest rate volatility, which factor grayling into the calculation of option adjusted spreads Fannie Mae for LIBOR option adjusted spreads were by some measures actually tighter at quarter end then they were on December 31st.

In the credit space yield spreads in some sectors such as investment grade corporate bonds also tightened significantly follows following the feds actions well other sectors, including non investment grade CMBS noticeably lab.

Many measures of market volatility subsided from their highs, but still remain greatly elevated at quarter end.

For Ellington residential the precipitous decline in interest rates and high levels of interest rate volatility generated net losses on our hedges and while our agency RMBS assets did appreciate in price during the quarter they significantly underperformed our hedges.

As a result, we experienced a significant net loss for the quarter as you can see on slide four.

As we discussed during the last earnings call. We entered the year with an extremely liquid portfolio and strong balance sheet, which position us well to weather the volatility, especially compared to many other market participants who became forced sellers at distressed prices later in March.

As March progressed, with the asset markets and financing markets looking more and more fragile we proactively reduced the size of our agency portfolio in an orderly and measured way, which bolstered our liquidity and lowered our leverage we entirely avoided any forced asset sales, which would have exacerbated losses.

The vast majority of the agency assets that we sold in March were sold to either earlier in the month before yield spreads hit their wives or later in the month after yield spreads. It all at already recovered strongly, especially after the fed removed any explicit limits on its asset purchase programs.

As we reported in early April we met all margin calls during the quarter.

A significant portion of the loss that we experienced during the quarter was related to the markets pricing and lower pay ups on high quality specified pools.

This pay up compression was largely attributable to market wide liquidity problems exacerbated by quarter end balance sheet pressures as well as to the implementation of the federal reserves amplified asset purchase program during the quarter, which was generally limited to TB A's as opposed to specified pools with payoffs.

Given that the Feds purchase program dominated the agency RMBS market fundamental valuation factors were overwhelmed by technical valuation factors. So even as mortgage rates at all time lows the market decidedly preferred to liquidity of TV A's and the lower capital required to hold them.

As opposed to paying up for the value of prepayment protection in the former specified pools.

Going into April we thought this payoffs on specified pools were artificially low and represented excellent value an upside to earnings and indeed specified pools outperformed in April.

While losses are always disappointing I believe given that leverage mortgage portfolios when the cross hairs. If the distress in the financial markets. This past quarter that it is a testament to our portfolio management risk management and liquidity management capabilities that we were able to limit those losses and preserve book value to the extent that we.

Good.

I'll now pass it over to Chris to review, our financial results for the quarter crest.

Thank you Larry and good morning, everyone.

Please turn to slide five for a summary of our financial results.

For the quarter ended March 31st 2020, we reported a net loss of $16.7 million or $1.35 per share.

Core earnings was $3.4 million or 27 cents per share.

These results compared to net income of $9.7 million or 70 cents per share and core earnings of $2.8 million or 23 cents per share for the fourth quarter of 2019.

Core earnings exclude the catch up premium amortization adjustment, which was negative zero point $7 million in the first quarter compared to negative $2.5 million in the prior quarter.

As you can see on slide five loss in the quarter was primarily driven by net losses on our interest rate hedges as interest rates decline and we're highly volatile during the quarter.

Portion of these losses were offset by gains on our specified pool and also by net interest income on our portfolio, which increased significantly quarter over quarter with lower borrowing costs.

Smaller negative catch up premium amortization adjustment.

TB outperforms specified pools during the quarter, as Larry mentioned, which depressed payoffs on or something like cool portfolio.

Despite the drop in mortgage rates during the quarter average pay ups on are specified pools decreased to 1.67% as of March 31st as compared to 2.05% as at December 31st.

Also on slide five you can see that our net interest margin improved significantly during the quarter, increasing 20 basis points to 1.2% driven by lower borrowing costs.

The water NIM led directly to an improved core earnings of 27 cents per share compared to 23 cents per share last quarter.

Our small non agency portfolio had a net mark to market loss for the quarter driven by substantial yield spread widening in that sector.

Please turn to.

Q our balance sheet on slide six you can see that we increased cash and cash equipment quick equivalents significantly quarter over quarter to $59.7 million from $35.4 million. In addition to cash we had other unencumbered assets of approximately $12 million as of March 31st.

At the ended the quarter, our book value per share was $11.34 compared to $12, a 91 cents per share from the prior quarter, our economic return for the quarter was negative 10%.

Next please turn to slide seven which shows a summary of our portfolio holdings.

Total mortgage backed securities portfolio decreased to $1.05 billion as of March 30, Onest, that's compared to $1.4 billion as of December 31st as Larry mentioned in light of the heightened levels of market volatility and system systemic liquidity risk, we proactively reduced the size of our agency pools.

Full year by 25%, thereby bolstering our liquidity and lowering our leverage.

At the end of the first quarter, our debt to equity ratio adjusted for unsettled purchases in sale was 7.2 to one decreased from 8.1 to one as of December 31st.

Substantially all of our borrowings continued to be secured by specified pools.

We satisfied all margin calls under our financing arrangements during the quarter.

Now please turn to slide eight for details on our interest rate hedging portfolio.

During the quarter, our interest rate hedging portfolio consisted primarily of interest rate swaps short positions in TV.

It was treasury securities and futures.

TV in short positions represented 16.8% of our interest rate hedging portfolio at the end of the current quarter up from 313.6% at the end of the prior quarter.

While TB outperform specified pools during the quarter.

Severely underperformed interest rate swaps and U.S Treasury Securities.

So our results benefited from the portion of our interest rate hedging portfolio that comprise he'd be short positions rather than interest rate swaps.

Next turning to slide nine you can see see the significant decrease in our net long exposure to RMBS as our net mortgage assets the equity ratio declined to 5.6 to one from 7.6 to one.

And Additionally on a more technical note as of January 1st 2020, we applaud the new credit loss standard known as seasonal because we have always for value to our portfolio through the income statement you still had no impact on our earnings or book or quarter and book value.

Finally.

During the quarter, we repurchased 136242 shares at an average price of $7.24 per show.

I'll now turn the presentation over to Mark.

Thanks, Chris.

But in the mortgage market for over 30 years, and I've never seen market liquidity and dysfunction that characterize the second half of March in early April.

That said well liberty period of market disruption, resulting volatility is unique each crisis series common features for earn early recognition of what was happening what was likely to come next and what the policy response could be all out our team substantially mitigate the extent of book value decline.

The first step in understanding what happened to agency MBS. During March is to look at the markets. During the first two months of the year pre coping.

For January and February we saw a 75 basis point rally in the 10 year note and that rate rally only huge prepayment fuse into the market mortgage originations toward.

Spreads on PBH widened and pits and specified pools climbed to very high levels with many pay ups exceeding four point.

Then the uncertainty of cobot grip the market. This was real uncertainty that caught the market by surprise and this was the kind of frightening uncertainty that historical data and traditional models cannot quantify.

Without facing the predictive power of models the market quickly repriced reflect fear in the motion is all and also repriced to perhaps the most important technical factor the proliferation of too many market participants with an adequate liquidity and over leveraged balance sheet.

The next step played out that they haven't pass crises the stock market cratered investors redeemed furiously from mutual funds, including fixed income mutual fund and repo lenders frittered about the safety and security of their loans.

She was in short supply to any bond holdings that required balance sheet leverage how to target on their back as cash was king.

Who understand the behavior of repo lenders you have to put yourself in their shoes.

Our best case is that the borrower pays off at Threep alone on time and at par and they could make their modest spread the worst fear is that the value of their collateral could dropped below the their repo loan.

Repo lender see prices drop the first pull lever that they can control their margin call and when they margin calling over leverage borrower that bar, we're often asked to sell immediately and that borrower is often forced to sell what Eric can regardless of fundamental value and can make matters worse in this case, the forced selling incurred not only.

He went cobot panic was at its highest but also was quarter end was approaching.

Thanks, typically reduced their risk going into quarter end, they had little balance sheets bare steel prices created including pay ups for specified pools.

It was almost irrelevant that loan balance specified pools have longer durations and TB aid well rate for rallying those are model output, we pulled lenders margin called at par with aggressively as they simultaneously had to deal with both the risk of the repo book and their own internal Corbin balance sheet pressures.

This month sees margin calls and the subsequent forced selling Patrick specified pools collapse.

Led to more margin calls on leveraging people portfolios and so on.

With this vicious cycle sitting motion you can see out thoughtful forceful. The response from the Federal Reserve was.

The fed quickly ramped up Q wheat, which we thought was likely but they also tailored to the current market not only was the fed using Q, we as a transmission mechanism to lead to lower mortgage rates, but they were also using Q, we for private sector balance sheet relief day. After day, the fed bought tens of billions of dollars of MBS for next.

They settlement and they bought a range of coupon not just the current coupon buying a range of coupon for short settlement quickly gave the market the balance sheet relief so desperate for.

When April finally arrived with balance sheets in better shape, and a new quarter, starting the Mark could then focus more on relative value with no longer price abject fear and desperate actions of the most overlevered investors.

What did earn do and what does this mean for future returns.

First the fact that agency mortgage Q, we firmly established as part of the Feds crisis management tool Kit makes agency MBS unique among structured products through is a limit to how much in agency portfolio will decline in value. If you risk managed the portfolio well enough that you don't have to engage and forced selling can meet margin calls which is the key.

When spreads are tight the incremental returns to be captured from that one extra turned to leverage our rarely worth it because it weakens your balance sheet in times of crisis.

Another protective measure we take is that we generally structure most of our repo with a three month term.

With staggered maturities and we don't try to save a few basis points by using too much overnight or one month repo.

Another important point about a portfolio positioning going to March is that early in the year, we decided that pay up for getting more fully priced.

Generally not been adding high payout pools. So after the crisis hit and pay ups collapse whenever we want to proactively lower leverage we had plenty of lower pay at pools to sell and it didn't cost us much to sell these pools versus <unk> in other words were able to proactively lower leverage more easily and more cheaply if we've allocated.

All our capital to very high Pip pools.

This is where our research effort really helped again, we concentrate on a research over much of the last six months to analyze and understand what types of lower pay up pools could still provide appreciable call protection, but at a low cost.

The other dynamic.

At this period of volatility we affirmed got agency MBS is that many losses from sweat spread widening reversible. If you can avoid being a forced sellers because you're not taking credit risk.

In contrast in many credit sensitive sectors of the fixed income market such as many sectors. The high yield corporate bond market, the economic impact of covert well absolutely create real fundamental credit losses that will not be reversible.

Looking forward, we now see tremendous opportunity in the current market and are well positioned to take advantage, we anticipate that prepayment speeds will surprise in the low side for borrowers who qualified for mortgages as part of the credit box it had been extending over the expanding over the past few years up until the crisis in March.

MBS spreads are still attractive and we think we can continue to benefit from the fed backstop and controller prepayment risk with modest pay up.

In addition, with the distress in the credit risk transfer or CRT market did your G.S. These are very are likely very concerned about their ability to utilize that market the awfully their credit risk going forward.

Faced with the possibility of having to hold much more credit risk on their balance sheet. We think that she sees will continue to shrink the credit box, which should keep speed relatively low despite where mortgage rates are.

We also like getting more TB as the portfolio mix in the current market in the past weeks to fed is reduced daily purchases from a peak of about 35 to 40 billion today down to 6 billion today, but if MBS were to widen materially from here. We think the fed has the ability to ramp up purchases again aggressively.

Another positive tailwind now it's available availability of great funding three month repo has declined sharply and should some little around.

It should settle in below 40 basis points, which gives us a generous net interest margin between asset yields and financing costs.

Since last summer the fed it's been keenly focused on making sure that repo financing cost for treasuries and agency MBS more closely tracked the fed funds rate. So the MBS repo rate should absolutely being the lower for longer regime.

Our analytic models have been very useful for making conditional predictions we have no crystal ball to tells from people will go back to work or how high unemployment will get but we think we are able to predict certain smaller outcomes such as prepayment speeds the function of mortgage rates what happens when the credit box shrinks and what happens when the fed buys.

Addicting answers to these questions have always been and we'll continue to be our primary focus to help and former portfolio decisions, but the same time in light of what happened in March we continue to monitor the big picture, we're acutely aware of the uniqueness of the current environment.

Recap, we see tremendous opportunity going forward.

And CMBS spreads are still wide the fed support financing is plentiful in cheap and roles at very attractive and we think prepayment protection can be found it relatively cheap levels. If you know where to look now back to Larry.

Thanks Mark.

I am pleased that we emerged from the volatility of March with our book value largely intact.

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Our risk and liquid liquidity management practices did what they are always designed to do they protected book value and they protected our shareholders.

This past quarter that men protecting our shareholders not only by avoiding any forced asset sales, but it also meant to protecting our shareholders by avoiding any expense of our highly dilutive capital raises.

And through it all.

We're still able to end the quarter with a lot of cash on hand that should enable us to play offense going forward.

The current investment opportunities look exceptional given the continued dislocations in most sectors of the residential mortgage market.

Even with pay offs recovering strongly in April specified pools are still attractively priced and financing costs have come down considerably.

Net interest margins in many RMBS sectors are the widest that we've seen in years and I believe that we are in an excellent position to take advantage of these opportunities.

Along those lines, we are currently considering increasing our capital allocation to our non agency RMBS portfolio.

All that said well the global government in central bankers Central Bank responses have provided a boost to liquidity and meaningfully improved market performance in the short term the path forward for the economy generally and the credit markets in particular remains unclear.

In light of this uncertainty our disciplined approach to liquidity management interest rate hedging an asset selection will continue to be critical.

We will continue to strive to balance defense that is building in a margin of safety to absorb additional potential market shocks with office that is the ability to capture some incredible relative relative value opportunities.

These principles will continue to guide us moving forward.

Before we open the floor to questions I'd like to take this opportunity to thank the numerous members of the entire Ellington team for their hard work over the past weeks despite difficult circumstances.

Hello, all of those listening on the call today, and so all of those in our communities and around the globe impacted we hope that you and your family's stay healthy and safe.

With that we will now open the call to your questions. Operator. Please go ahead.

Thank you as a reminder to ask an audio question. Please press star followed by the number one on your telephone keypad. Once again that is star one to ask your question.

And your first question from line of Doug Harter with credit Suisse.

Hey, guys, it's actually Josh on for Doug. Thanks for taking the question, we saw lower leverage in the quarter not surprising I'm curious, how you're thinking about target net mortgage leverage just given the uncertainty in the market and I guess follow up to that would be.

How does that translate into the or you're seeing on on incremental capital deployment you mentioned.

Increase, possibly increasing allocation to non agency. So maybe just the difference in always you're seeing the different buckets that you are you look at thanks.

Our.

Sure so.

On the agency side.

I think we can get are always tend to 12%.

Spreads are not as wide as they were.

ER earlier in the month, but there's also a lot less volatility right in the volatility comes with an increased a hedging expense so.

Well I mentioned in the prepared remarks, we've spent a lot of time.

Understanding where we can get call protection without exposing the portfolio to I'm very high pay up I think that's the sector will continue to.

Investing in where we think we'll see the best filled to value in terms of the are always on the non agency market right. The non agency market came under a lot of pressure.

In March there were.

<unk> tremendous selling not only from mortgage Reits, but also from a mutual funds.

And so we've seen substantial drop in those prices above and beyond what could be justified by higher loss expectation longer time lines et cetera. So there I think we'd apply certainly lower amounts of leverage because there's still tremendous uncertainty.

And so you can't rule out the possibility.

Asset prices declining, but with modest amounts to leverage there I think we can get sort of or are we you know 10% to 14%.

Your next question from the line of Maciel Guberman with JMP Securities.

Oh, good morning, gentlemen, and congrats on a oh very good quarter in difficult circumstances, it's kinda.

Strange, saying that I'm, giving a 12% booked value dropped, but considering or what other terms opposed to that's fantastic.

I appreciate that thank you.

Yes, absolutely could you, possibly give me a book value update thus far through April and what we haven't made.

We're not we're not prepared to do that.

Okay, meaning that yeah, it's just yeah if.

Yeah, what we we do have those numbers internally and Ah we did put out I'm, obviously a lot of information.

In early April release.

And you know we will continue to consider whether.

Whether we think it's appropriate.

To put out intra quarter releases, but generally it has not been our practice.

Okay fair enough. Thank you.

And you mentioned that spec pools are still pretty attractive.

You also mentioned I think you like GBA is at this point as well could you maybe talk about your appetite for one versus the other as as we move forward.

Sure. So this is mark in regard to be a we're in with the fed support.

That to US is a material change from the market three months ago six months ago. So.

We spoke a lot on earning calls we did.

When we reviewed a 2009 conformance about improving technology in the mortgage space.

How we thought that was adding to negative convexity and you know the big increase and whack the big increasing 17, WACC and coupon that you saw for 2019 and how all those things.

Sort of pointed in the same direction, which is essentially erosion in the convexity of P.B.A. and the erosion in TB a the quality of TB. A is a cash flow that you can effectively hedge at a low cost with interest rate swaps or treasury. There was just.

A lot of negative convexity.

That got introduced into the TV market in 2019.

And you didn't have any fed buying to absorb the cheapest deliver rights remember 2019.

Said was solidly in portfolio production mode, and they were letting the portfolio run off by 20 billion them up right.

And now.

Now two important things have changed that we see first is obviously fed support right. So the fed is now buying certain coupons and if you look at the implied roll <unk> the implied financing costs.

As you know that you can infer from the roll market for the coupon at the Feds aggressively buying Fannie to UNEV, Fannie 350 near to that.

Some of the Ginnie coupon.

Role levels are very attractive now so now the roles are not priced to the worst quality P.B.A. They were in 2019 now their price to the fact that the fed is who bring up the.

The worst pools, and they're buying it's that size that they're creating a little bit of a front month short many months. So rule level on with the fed is buying is is attractive to us and the other thing is that.

At the fed <unk>, we mentioned in the prepared remarks, the fed has already reduced their purchases substantially so.

I don't think.

You know if we hadnt seen the fed reduced their purchases, we would've thought it's likely to market stabilize the fed will reduce their purchases and that can cause mortgages to widen but that has already happened right to the fed went from buying as much as 40 billion today now buying more on the order of 6 billion today. So the fact that the fed has it ready tape.

But their mortgages.

Now it leaves us with the view that the a pace their mortgage buying is more symmetric is likely to be with us for a little while so it has those two things cause us to like a certain TB a coupon.

More relative to discount specified pools than our view of the world in 2019.

So it's really it's really those two things and.

You know, they're both significant and you know that can change right. That's the one thing I think it's important to emphasize is that.

To get the best risk adjusted returns these portfolios.

You have to be dynamic and you have to respond to new information you you can have an investment thesis that looks great on a Monday and Tuesday newer fracing can come in and you know you've got to take that information in and maybe that should alter your investment thesis. So that's that's how the world looks with right now, but you know we every day we.

Try to come in and challenge the investment thesis and see how new information can you can and should causes to adjust what we're doing.

Thank you Mark for that answer very.

Very detailed.

One more if I may I'm looking at slide 11 of your deck, which shows.

A negative spread a three month LIBOR or versus repo of about I guess 2025 Bips at April 1st.

I believe in your prepared comments, you were saying that three month LIBOR or should be settling at around 40 basis points. So what do you currently seeing or for repo and is there could you see that spread sort of turn positive.

I'm not not like it did back in 2018 of course, but.

Basically what are you seeing for that spread going forward.

Yes, so I think.

And the prepared remarks, what we said was that we think free month repo, it's going to settle in before 40 below 40 basis points. Now if you look at five month LIBOR or it's had some extraordinary volatility in the past couple of weeks Rightskill month, LIBOR or had been.

Shockingly high two or three weeks ago, and very high relative to Oh, I asked and now we're starting to come down so.

Where I think three month LIBOR is gonna be versus three month repo I think they're going to be similar right. So we're not going to get that big tell when we've had from time and time to time when three month LIBOR was very high relative to three month repo and then the floating like you're receiving on your swap.

Is a more than covering the repo expense. So I think we're gonna be in a period of time, whether those two numbers are roughly equivalent.

But on the equivalence would be better than what we had for a lot of 2019 and the other thing is that.

It was just the yield where we can buy assets.

If we were really thoughtful about what we selecting the agency mortgage market that relative to the financing costs and then adding on the additional costs on the.

Pay fixed swaps.

That's a very healthy net interest margin and if we do that in a way we're not.

Exposing ourselves to a tremendous pip volatility.

You know it <unk> the net interest margins are really healthy right now.

Yeah, and if I could if I could just add.

That.

Our interest rate swaps right now [laughter] Mark.

You know.

Correct me, if I'm wrong, but you know there.

Either exclusively are almost exclusively LIBOR based swaps.

Yeah, no exclusively I think it's exactly so now or.

There are as I'm sure you know there are other types of swaps that some other market participants in our sector have been using you know so called though I ask swaps.

And and that's something that we're you know we've looked very closely at.

And you know I would say that.

It was it was obviously very good for us that we were exclusively in LIBOR swaps throughout this stress of March you know library got very high.

And so we were receiving higher rates on our swaps on the army offloading like our swaps.

But at the same time right. We you know that was that was helping us with the stress whether it was and you know.

Whether you want to call that distress in the repo market or even just.

What was going on with asset prices right. So that was a tailwind small tailwind obviously.

During March but it does show you know that in times of stress right. It doesn't make sense to have these LIBOR swaps on when the markets are very stable. So you know this is again, it's hard to have a crystal ball, but you know looking forward.

If the markets become very stable than our financing cost probably will be more correlated or maybe slightly more correlated with with with these more Oh I asked you know based swaps, which don't have the type of five credit risk as much credit risk embedded in them as LIBOR swaps.

So you're you're right. It's you know, it's a little bit a.

A function of what's going to serve you better in a time of crisis versus what's going to correlate better with your funding costs.

You know in normal in more stable normal times.

Great. Thank you very much for those answers and want to extend the best wishes to all of you in your families. Thanks.

Thank you you too.

Thanks, Thank you and we have no further questions. This will conclude today's meeting you may now disconnect.

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