Q2 2020 AGNC Investment Corp Earnings Call
[music].
On our call.
All participants will be unless and only about.
Should you need assistance, please call for special suppressing the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
A question you May Press Star then one under Huston phone.
Well, it's all your question. Please press Star then too.
Please note that this event is being recorded.
Oh, no teleconference over to Katie Wisecarver Investor Relations. Please go ahead.
[music].
Thank you all for joining Aegean Sea investment Corp, second quarter 2020 earnings call before we begin I'd like to review the Safe Harbor statement.
This conference call and corresponding slide presentation contain statements, but 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 workout.
Due to the impact of many factors beyond the control Adriana see.
All forward looking statements included in this presentation or need only other vis a vis presentation.
And are subject to change without notice.
Certain factors that could cause actual results could differ materially from those contained in the forward looking statements.
Pardon quit isn't a risk factor section of age you haven't seen periodic reports filed with the Securities and Exchange Commission.
Copies are available on the Fccs web site.
I see Si dot Gov, we disclaim any obligation to update our forward looking statements unless required by law.
Participants on the call include Gary Kain, Chief Executive Officer.
Bernie Bell Senior Vice President and Chief Financial Officer, Chris Kill Executive Vice President.
<unk> costs, senior Vice President and Peter Federico President and Chief operating Officer.
But I'll turn the call over to carry King.
Thanks, Katy and thanks to all of you for your interest in agency.
We were very pleased with the performance of our portfolio in the second quarter with economic return totaling just over 12% as we recovered a significant portion of our Q1 was.
More importantly, we remain optimistic about the earnings power of the portfolio across a wide range of possible economic scenarios.
This favorable earnings backdrop.
Is evident in our net spread in dollar roll income, which increased one cent per share to 58 cents in Q2, despite a smaller portfolio and lower average leverage.
During the second quarter market conditions improved materially as the unprecedented monetary and fiscal support drove a dramatic recovery in equity markets around the world.
The S&P 500, recouped almost all of the Q1 losses, while the NASDAQ finished Q2 over 10% higher than where it began the year a quarterly increase of over 30%.
Fixed income credit also performed very well with most credit spreads were covering close to 70% of the Q1 widening.
Interest rates were very stable with the yield on the 10 year treasury ending the quarter within a basis point of where it closed on March 31.
The short end of the Treasury and swap curves performed better in response to growing confidence that the fed we'll keep the funds rate near zero for multiple years.
Despite very limited interest rate volatility massive fed support and the dramatic recovery and credit centric products generic agency MBS performance was mixed with lower coupon tightening modestly while higher coupons widened.
Specified pools, which underperformed dramatically in March saw significant recovery.
The outperformance of specs drove our strong book value and economic return performance for the quarter.
Contrary to expectations, the mortgage origination market was less impacted by locked down and social distancing.
Refinancing volumes remain very robust and we saw rapid recovery in the home purchase market.
The heavier than expected origination volume, which totaled 730 billion in the second quarter served as a major offset to fed MBS purchases.
As a result, lower coupon agency MBS valuations, while modestly tighter quarter over quarter remains attractive both in absolute and relative terms.
This attractiveness is further enhanced by improved dollar roll specialness in lower coupons.
Trend, we expected to see during the quarter.
As Chris will discuss shortly incremental levered or are we potential on low coupon 30 year TB A's, it's still in the low to mid teens, depending on the amount and durability of roll Specialness.
In contrast, the projected returns on most higher coupon specs have declined to the lower double digits on the back of price increases and faster prepayment expectations.
From a big picture perspective, the current investment environment is very different.
And more favorable for US then the Q3 error.
Back in late 2012, and early 2013, the Feds purchases drove agency MBS spreads to valuations around 50 basis points tighter than today's levels by most measures.
While the Q3 tightening was temporarily good for book value it materially lower than our expected returns on new purchases and set the stage for the significant widening in spreads that occurred when the fed telegraphed the tapering off its purchases.
Today, despite fed purchases of over 850 billion since mid March.
M.B.S. valuations remain attractive benefit from favorable dollar roll levels and are easier to hedge given the zero interest rate bound.
In summary, we feel good about Agncs performance in Q2 and remain confident about the earnings potential of the company.
Given the lack of credit risk in our agency MBS portfolio and the favorable funding backdrop, we believe agncs should be able to produce strong returns regardless of the progression of coven 19 or broader moves in the global economy.
This potential for our portfolio to perform well in either our risk on or risk off scenario is somewhat unique to agency.
At this point I will turn the call over to Bernie to review our financial results for the quarter.
Thank you Gary turning to slide four we had total comprehensive income of $1.60 cents per share for the second quarter net spread and dollar roll income, excluding catch up and let's 58 cents per share for the quarter, which as Gary mentioned was up slightly from Q1 despite immaterial.
At least smaller average portfolio balance lower average leverage and meaningfully faster prepayment projections.
Good morning headwind for offset by lower aggregate funding cost, which drove the slight improvement quarter over quarter.
Tangible net book value increased 9.5% for the quarter led by a significant rebound inspect pull valuations.
Putting dividends our economic return on tangible common equity was 12.2 per cent for the quarter recovery nearly half of our first quarter economic loss.
So far this quarter, we estimate that our tangible net book value is down a couple of percent given a modest pull back and spec pool pay up values.
Turning to slide five.
Our average portfolio at quarter end.
Total 97.7 billion up 4.7 billion from the end of the first quarter, our Indian leverage was 9.2 times tangible equity down slightly from 9.4 times as of the end of the first quarter.
As I mentioned, given the significant decrease and our average portfolio balance for the quarter. Our average leverage was down meaningfully for the second quarter at 8.8 times tangible equity compared to 9.9 times in the first quarter.
Our liquidity position remained very strong and the second quarter and as above pre crisis levels with cash and unencumbered agency assets totaling 4.5 billion at quarter end importantly that figure excludes both unencumbered CRT and non agency securities as well as.
Assets held at our broker dealer subsidiary Bethesda Securities.
With mortgage rates dropping to historically low levels during the quarter prepayment speeds increased across the coupon stock.
Actual prepayments speeds on our portfolio increased to 19.9% for the quarter, while our forecasted life's CPR increased to 16.6% from 14.5% last quarter.
Lastly, during the second quarter, we repurchased $147 million of our common stock at substantial discounts to our tangible net book value for an average repurchase price of $11, a 99 cents per share.
With that I'll turn the call over to Chris to discuss the agency market.
Thanks, Bernie let's turn to slide six interest rate volatility was muted in the second quarter with 10 year treasury rates ending the quarter, one basis point lower at 64 basis points yield curve did steep and was two year in five year Treasury yields 10 basis points lower ending the quarter, It 15, and 29 basis points.
Respectively.
Agency MBS spreads were generally tighter, but performance was mixed with lower coupon TB A's modestly tighter while higher coupon TV days were modestly wider.
Specified pools, however, where the best performers regaining most of the Q1 widening.
The unprecedented that support from the fed with purchases heavily concentrated in production coupon MBS drove the outperformance and lower coupons, even with gross supplies significantly larger than expected as you can see in the lower left table on page six higher coupon TB, three and a half since worse declined in price during the quarter.
As prepayment speeds generally surprise to the upside as the widely expected cobot related headwinds to housing and refinance activity did not materialize.
Faster prepayment speeds on more generic cohorts in the weakness in higher coupon TB, a led to a strong outperformance of higher coupon specified pools in the second quarter.
Let's turn to slide seven.
You can see in the top left chart the investment portfolio increased by a little over four and a half billion as of June thirtyth, given the outperformance of specified pools, most of which occurred in April we continue to trim positions in both higher quality and generic higher coupon MBS versus adding production coupons.
During the quarter, we reduced holdings, and 3% coupons and above by approximately 12 billion versus adding 16 billion into and a half some twos as I mentioned on the call last quarter, we expected dollar roll financing to improve as the combination of very strong origination volumes and large fed purchases, which continue.
To clear out the worst bonds and the float create an ideal backdrop for dollar rolls.
Roll financing on lower coupon TB a is currently trading around 20 to 80 basis points through repo depending on the coupon.
With this degree of Specialness, the potential contribution to returns as material.
As a hypothetical example, with gross returns on lower coupon 30 year MBS funded with repo around 12% 25 basis points of dollar roll Specialness has the potential to add more than 2% an incremental return.
Realistically roll specialness could be even higher or has it is today, but there's no guarantee that it will persist we remain optimistic about the investment environment, given relatively wide spreads attractive Carrie and low interest rate volatility and while the prepayment backdrop is certainly not the tailwind we had hoped for our diversified portfolio.
You know of higher coupon specified pools and production coupon TV, a has offsetting risk characteristics that position us well in the current environment.
I'll now turn the call over to errand to discuss the non agency market.
Thanks, Chris how quickly recap our current positioning and then update you with our outlook on credit.
Please turn to slide eight.
After facing unprecedented price action in the first quarter, both equities and credit markets staged a fierce recovery in Q2.
As it stands now we've seen a V shaped recovery and credit spreads get an uncertain backdrop remains on when the economy will be fully reopened and the resulting toll on the consumer and business sector.
The puts the magnitude of the rally in perspective from the start of the year to the wise in late March.
Hi, GE and high yield Cdx spreads were approximately 100 600 basis points respectively.
Subsequently they have tightened about 70 and 370 basis points.
Our holdings across the portfolio were largely unchanged with a slight shift in the vintages overseer t. portfolio to more recently issued securities.
He is there generally more exposed to and benefit from higher than anticipated prepayments, which is a natural fit for our portfolio.
On the residential side as we mentioned last quarter. The quick implementation of forbearance programs would likely result in reduced downside pressure on housing prices in the near term.
The GRC subsequently announced the ability to defer up to 12 months of payments does skipping borrowers are much easier path to return to current status.
This was particularly beneficial for credit risk transfer as it served to reduce potential modification related losses.
This change along with faster than anticipated prepayments stabilization and forbearance requests and the improved macro backdrop led to a strong rally in CRT.
Additionally, many of these seems themes were supportive of credit spreads in other parts of the residential credit markets.
On the commercial front well increases in delinquencies have stabilized for the time being we believe this sector remains particularly exposed to the stops and starts in the economy.
Well, we're comfortable with their positions from a risk perspective, we generally remain defensive until we get better clarity around the timing of a potential return to normalcy in the economy.
Looking forward with the fed actions setting the stage, we're likely to be into regime of relatively tight credit spreads coupled with an elevated fundamental risk environment for sometime.
This does present, many challenges and particularly so for Lebron investors.
Since the risk return equation as a bit skewed.
The same time with rates expected. This at close to zero bound for years. It also means picking the right bonds today could generate reasonable returns as bonds that ultimately have sufficient credit support are likely to see a spread tightening over the coming couple of years with that I'll turn the call over to Peter to discuss funding and risk management.
Thanks, Aaron I'll start with our financing summary on slide nine.
The repo market for agency MBS traded very well into second quarter and continues to benefit from the Feds open market operations as well as the very significant influx of cash into government money market mutual funds.
The substantial demand for high quality collateral like agency MBS has led to a meaningful repricing across all repo tenors.
As a result, our average repo costs fell to 76 basis points in the second quarter less than half of the 180 basis points, we reported in the first quarter.
A key development during the quarter was the feds communication regarding their intention to keep short term rates near zero for the foreseeable future.
Chairman Powell statement that the fed is not even thinking about thinking about raising rates makes that's very clear.
As a result, the repo funding curve flattens significantly.
Today for example, there was only about a five basis point cost differential between overnight repo with trades at around 15 basis points, and one year repo, which trades at around 20 basis points through our captive broker dealer.
I expect these favorable funding conditions to continue and as such I expect our average repo cost to drop to around 40 basis points in the third quarter as more of our outstanding repo resets at current market rates.
Our aggregate cost of funds, which includes the cost of our swap hedges fell to 88 basis points in the second quarter down meaningfully from the 167 basis points the prior quarter.
This improvement more than offset a decrease in our asset yield and drove the notable improvement and our net interest margin, which increased to 168 basis points.
Looking ahead I expect our net interest margin to improve further into third quarter.
Turning to slide 10, we provide a summary of our hedge portfolio, which totaled 59 billion at quarter end unchanged from the prior quarter and covered 66% of our funding liabilities.
As we discussed last quarter with swap rates at such low levels. We continue to view this as an opportunity to lock in very attractive funding for an extended period of time.
As such we continued to adjust the composition of our swap portfolio in the second quarter.
Unwinding more of a shorter term swaps and replacing them with slightly longer term swaps as a result, the average maturity of our swap portfolio increased to 5.1 years at quarter end from 4.5 years prior quarter.
On slide 11, we show our duration gap and duration gap sensitivity.
Given the stability of interest rates during the quarter, our duration gap remained roughly unchanged at negative 0.1 years and with that I'll turn the call back over to Gary.
Thanks, Peter and at this point I will open up the call to questions.
Yes. Thank you we will now begin the question and answer session.
Oh ask your question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then so.
This time, we'll pause momentarily to assemble the roster.
And the first question comes from Doug Harter with credit Suisse.
Thanks, Gary.
So how are you in the board or thinking about dividends given some of the much higher level of earnings this quarter and your commentary about that Oh those conditions are system.
Yeah, I'd be happy to that and thank you.
For the question.
[laughter] when you when you look at to our net spread and dollar roll income performance this quarter.
And your realistically the fact.
That is still probably biased upward from here are you certainly could conclude that our dividend call. It was on necessary yeah, there and we made that move back in April you know just a few weeks after kind of.
The depth of the crisis.
You know that being said I do think it's important you know to talk to you know view it yeah, I mean in our minds, while it may have been on necessary.
But you know we're not sure it's not optimal in terms of Ah you know the return kinda profile for shareholders. I mean, if you look at you know our dividend yield relative to our stock price, obviously, just north of 10%, which is still a very attractive dividend yield and you know by.
Having a dividend you know so far below net spread and dollar roll income and even versus that trajectory of net spread and dollar roll income. It really gives us a nice tailwind to book value over time, and that's not a bad situation for us to be in and.
For our shareholders, so very attractive dividend tailwind you know too you know for book value and you got on that obviously, we also have you know what share repurchase program in place at which were certainly very very willing to use as another way of return.
Any capital to shareholder.
If that makes sense. So big picture you know it is something that we will continue to look at and you know we will evaluate over time, we're cognizant of the large gap between again, both our current net spread income and you know and yet or.
The the likely trajectory again, which is still positive and where the dividend is but we also want to be you know you know cognizant that there you know there are there are some benefits to the situation as well. So it is something that we will evaluate overtime and it's something that the board is gonna be very.
Focused on.
And then just to follow up the those points all makes sense, but yeah, I guess, where where or how much flexibility do you have from a taxable income standpoint, and kind of you know how different or kind of taxable and kind of the core let's drop right now it gets them I'm kind of <unk>.
And that dividend discussion.
Oh, there's a wide gap between taxable income and at our core and so realistically. Our taxable income is very low at this point and projected to be very low so that doesn't come into play with respect to the dividend we have lots of flexibility with respect to the dividend. The reason taxable income is so low.
I mean, there's multiple reasons, but one is it treats dollar roll income differently plus you know in light of all the activity over the.
In particular in the first and second quarter in terms of repositioning the swap portfolio changing the duration around the probably by far the biggest differential between GAAP and you get to or a net spread and dollar roll income and taxable income relates to terminated swaps that get.
Terminated, which then get amortized for taxable income, whereas there taking as an upfront you know a cost and then.
On the regular income front I don't know Bernier, Peter if you want to add anything to that.
Yes, Gary.
Last point is the key one and obviously, we still have some rebalancing to do there. So I projection for that taxable income is so that's not going to be a constraint for some period of time.
Great. Thank you guys.
Thank you.
The next question comes on Bose, George with KBW.
Hey, good morning.
She can you go over the drivers of Specialness in the lower coupon MBS and and also when we think about your returns should we sort of think about a base case return under spread income kind of into low double digits, and then the specialness being sort of what flexes, it up and down from there.
Yeah, I think that's a good way first off I'll take the second half of your question first I think it's a good way to think about it and we start by thinking about okay. If we buy a new production 30, or two or two and a half.
What you know in that and let's say you know we think that the spread is 110 to 120 in that ZIP code, depending on prepayment assumptions. That's the right. That's a good starting point. However, you know you're the first part of your question is really important.
Then if you think about.
The drivers of specialists and what creates a situation.
Dollar rolls or special you need.
The first piece actually is everyone always says the fad and Ed that's a huge piece of it and I'll come to that but the first piece is actually significant origination volume and we are seeing that like we've never seen it before you know where last couple of months have been around 250.
Daily at a month in gross issuance and remember the way the origination Woodmark market works is people sell those forward 123 months, even and so that drives down the price of.
Of out month.
TB A's.
And that's a that's the first step realistically and creating Specialness now second of all you've got massive Fred fed purchases.
Which take continued to take out.
Kind of existing production and the fed purchases or in the neighborhood of 40% of that origination total origination and what and importantly, what at the fed purchases do is they take out kind of the fastest prepay and kind of.
Leased desirable pools within the float which means that you know then that gets priced into dollar rolls because the bonds that float around for other investors are dramatically better. So when you put those two pieces together you have the.
I think these are the words, Chris used the ideal backdrop for roll Specialness.
And so we do think we're in that that kind of situation.
We talked about that on our April call the roll Specialness hadn't really materialize, because we were still working through balance sheet issues and other things in April but it really started to materialize in May June and its continuing now so we feel very good about the sustainability.
Of roll Specialness now, it's going to bounce around in terms of the magnitude but.
But in the lowest coupons in both 30 year on 15 year, we feel pretty good about the fact that it's sustainable certainly over the near to intermediate term at saw at a level, where it's going to add to our we is so it is important to while you start in the calculation.
Where we talked about where you would want to rebuild funded position. We do believe that TB A's are going to outperform that.
Because of the roll Specialness.
Okay, great. Thanks, very helpful. And then actually just on the on your prepayment expectation can you just talk about what you're thinking in terms of the primary mortgage rates like what that does versus a benchmark overtime.
I'm sure so I'm being the primary mortgage rate has been trending lower and likely will trend a little lower from here and that's certainly something that you know both we and I think the market certainly understands another factor you know that.
You that comes into play at some point, obviously is expectations around interest rates, you know and when we look at things we factor in the forward curve, which does have.
After some period of time puts an upward bias I'm on the mortgage rate as well as long rates. So you know in the short run the biases toward somewhat lower rates.
Blot mortgage rates again, because the primary rate drives prepayments in general are there other things to keep in mind. I mean, you know we don't know the other thing that factor into refinancing activity and prepayment estimates are qualifying obviously for mortgages and.
We we are seeing you know.
In an environment, where unemployment is likely to be elevated for some time and we are seeing you know a tighter underwriting environment than what we had even three to six months ago.
So I think there are some offsets the other thing to keep in mind about prepayments is that in these re Fi waves you see these.
Peaks or big bulges, and sometimes they are more narrow and other times are a little more spread out and with the mortgage rate dropping and you know in light of these circumstances. It maybe a little more spread out but you also but there is this element of burned out where people have had really good offer opera.
Attunitys to refinance and even if the opportunities a little better if they didnt take advantage of 100 basis point opportunity taking advantage of 110 basis point opportunity five months later doesn't necessarily do the track. So I'm not so long winded answer, but I tried to touch on it.
Couple of different elements of that.
Okay, great. Thanks, It was helpful.
Thank you and the next question, so George <unk> with Deutsche Bank.
Hey, good morning, Gay you alluded to a favorable backdrop for agency given the very accommodative fed.
Yes, that's been trains anchor gives zero hedging dynamics are attractive and fed purchases are likely to continue for some time.
As you think about downside risk to your.
Book value.
Dividend sustainability and had near to medium term what would you say are the biggest kind of things that are on your radar today.
Sure look I mean, I think the you know I'll start again, maybe in reverse order yeah, we're not going back to the earlier answer on the dividend we're not overly concerned about we're not very concerned right now at all about dividends sustainability.
You know there the biggest headwind or potential headwind to book value is in the near term is probably yoki continued faster prepayments and.
And some incremental pressure we've already seen at a little in the last couple of weeks on on spec payouts and at higher coupons. So I wouldn't honestly be surprised US you know to to see you know a little more of that but we're talking about that in terms of.
You know a couple percent here or there. There's also some risk to book value certainly have you know lower coupons in bouts of when when there's significant origination volumes that can exceed you know certainly the feds Ed if there isn't significant bank buying at the time I think you could.
See periods, where lower coupons widen a little bit, but big picture without significant interest rate volatility and with the fed backstop. The way. It is it's really not an environment, where we expect to see a lot of book value volatility and I would say that's true in either direction.
You know I know people would like to see what's a scenario where book value explodes from here.
It's possible that the fed activity could drive book value higher and you know and that could be a kind of a relatively quick move. We we think thats route we think thats unlikely. We think were more in an environment, where book value is gonna be relatively stable on both sides and.
We're going to be in a favorable earnings environment and what's important to keep in mind about our portfolio is we sort of have a mix now of lower coupons, which really benefit directly from the fad, which benefit from the dollar roll Specialness.
And where you know there's very limited prepayment.
Theories in the near term and then we have our higher coupon specified portfolio, which we continue to sort of optimizing and Peru, and then you know try to tailor for the current environment and you know those those sort of have different risks and I think that also helps to reduce the book value volatility.
Okay embedded in our portfolio as a whole, but hopefully that helps.
Great that's helpful.
Thank you. Thank you.
Thank you.
Your next question comes on Trevor Cranston with JMP Securities.
Alright, thanks, good morning.
Follow up to the question about the prepaid outlook and your thoughts are on the primary mortgage route.
Can you maybe.
Just to ask a different way can you maybe talk about sort of what you would expect to see in terms of prepaid speeds.
You know for example, if the primary mortgage route 2.5%.
Recognizing that and maybe sort of a flatter peak wind speeds increase.
I guess, how sensitive generally do think speeds would be too to like a 50 basis point department mortgage rates right.
I'll start now I'll, let maybe Chris chime in a little as well, but the the short answer is it depends very much on what type of security what coupon you're looking at what seasoning, how how long as had been outstanding.
The loan balance and lots of other characteristics. So as an example going back to the earlier point I would expect fours and four and a half specified pools, which we own a fair amount I'm not to be all that impacted I'm, not saying speeds won't pick up on them, but they have.
Dramatic.
You know incentive to refinance today, and we've seen a healthy picked up in those speeds.
And so but while they'll have a you know stronger refinancing set up and there may be some increase we don't expect that increase to be dramatic and it should tend to burn out quicker I think when you start looking at specified pools in the 3% to 3.5% coupon.
That's where I think you know they will be the most reactivity to that kind of decline now with respect to TB A's and most Tvs that are more seasoned in threes through fours.
They'll pick up as well, but they are they're already fast and the challenge will be I think where you will see some parts of the lower coupons lets say like 30 or two and a half will you know will become a lot more like freeze and you'll have to be very careful at a certain point in time it.
Will still take time, because the fed will still be absorbing the more seat you know the the the worst pools out there and the most seasoned.
So you can still high for probably a good at least six months, maybe nine months in in the brand new list originations in that coupon, but but you're gonna have to be careful about lower coupon you know tier TBS such as to when a house because they.
Will you know flipped very quickly or in that scenario into a prepay window, but again that will be manageable given the feds you know kind of purchase program and the fact that theyve cleaned up the float.
And the other way you deal with that is obviously you know migrating your coupons.
Chris I don't know FA, if you want to add anything to that.
Yeah, no Gary that covered it pretty well I mean, we're already the one thing to keep in mind I'd say is that were already operating at or near capacity for lenders.
You know, what's around 90% of the mortgage universe exposed to call. It at least a 50 basis point rate incentive so everything else equal even if rates stay here it'll take time for the the.
The primary secondary spread to come down it's not going to just gap down since we're already close to capacity you know, but to your more directly to your question clearly you know two and a half's.
Two and a half would be the most exposed to sort of Oh, no cost, 2.5% mortgage rate, but we're still a good ways away from that right now.
Okay. That's helpful. Appreciate the comments thank you.
Thank you.
Our last question comes on line of Charlie Australia with JP Morgan.
Hey, good morning, everybody. Thanks for taking the questions today.
You noted in the prepared remarks about 730 billion in origination volumes during the quarter.
Which helped offset those fed purchases I'm wondering what your outlook is like for supply through year end and I'm wondering if there was sort of a a catch up effect as the lock down lifted and things returned to normal or if that pace is sustainable given where rates are.
So what I would say is what we really didn't see and we mentioned this you know a couple times in the prepared remarks.
You know I think most market participants had expected more of an impact from the lockdowns and social distance, saying I'm in the second quarter around.
Origination volumes refinancing and even the housing market and interestingly I think what you saw in the mortgage market was really what you you saw kind of more globally or across.
Retail delivery.
The the business didn't shutdown I mean, it just moved online or technology took over and I think we saw that in the mortgage market as well and so just first off what I would say is that I don't think we saw much.
Cash disruption, which certainly was a possibility so taking that forward.
We believe production remains.
Hi.
And around the current levels for let's say at least the next two or three months.
Before likely you know starting to you get will tail off as people get more use do the this general level of rates.
And where there is what we will say is a little bit of a catch up is actually on the demand side I think the production will be better absorbed.
In the second half of the year, and we're sort of ready seeing that a little in July.
Then it was certainly early on let's say March and April you know, even with large fed purchases because of the fact that the prepayments.
Probably won't be accelerating going forward there are ready at high levels and if anything there is sort of catch up around reinvestment of paydowns, even at the fed there's catch up on that will that sort of built in and certainly amongst many other investors as well as they've already.
Had some very high months of prepayments and not list and not necessarily all of that has been reinvested. So look I think thats the high levels of production.
Coupled with a continued fed bid coupled with this sort of pent up reinvestment I.
I think is why we we.
Don't see a ton of volatility in lower coupon prices.
No more MBS spreads are prices you know as we as we look ahead and again. It's also why we you know we see dollar rolls remaining very special.
Got it thanks very much for the color appreciate it.
No problem.
Thank you and we've now completed the question and answer session, let's turn the call back over to Gary Kain for concluding remarks.
I'd like to thank everyone for their interest in AG and see their participation in this call. Please stay safe and we look forward to talk into next quarter.
Thank you that concludes today's teleconference. Thanks for calling in for today's presentation may now disconnect your lines.