Q1 2021 Ellington Residential Mortgage REIT Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold we thank you for your patience.
[music].
Good morning, ladies and gentlemen, thank you for standing by and welcome to the Ellington residential mortgage REIT two.
2021 first quarter of financial results Conference call.
Today's call is being recorded and at this time all participants have been placed on a listen only mode.
And the floor will be opened for your questions. Following the presentation.
Would like to ask the question at that time. Please press star one on your telephone keypad at anytime. If your question has been answered you may remove yourself from the queue by pressing the pound key lastly, if you should require operator assistance. Please press star one.
It is now my pleasure to turn the floor over to Jason Frank Deputy General Counsel and Secretary, Sir you may begin.
Thank you and welcome to Ellington residential the first quarter 2021 earnings conference call before even the again I would 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 of our annual report on form 10-K filed on March 16, 2021 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.
These forward looking statements as predictions of future events statements made during the conference call are made as of the date of this call and 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 are Larry Penn Chief Executive Officer of Ellington residential Mark the coffee our co chief investment.
The officer and Christopher 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 REIT dotcom. Our comments. This morning will track. The presentation. Please note that any references to figures in this presentation of our qualified in their entirety by the end notes at the back of the presentation with that I will now turn the call.
The Larry.
Thanks, Jay and good morning, everyone. We appreciate your time and interest in Ellington residential.
During the first few months of 2021, we saw a decidedly different market environment in the latter part of 2020.
The yield on the 10 year U S Treasury, which had been historically low and range bound during the months. Following the outbreak of COVID-19 broke above 1% at the beginning of January and continued to rise throughout the first quarter of 2021, increasing 83 basis points in total as you can see on slide three.
At the same time short term interest rates remain anchored near zero percent. Thanks to the continued accommodative policies of the federal reserve and what had been a relatively flat yield curve suddenly steep it with the two year tenure spread increasing towards the widest level since 2015.
Meanwhile, interest rate volatility increased and mortgage rates rose off of their all time lows, particularly during the latter half of the quarter.
The spike in long term interest rates and surge and implied volatility was not a constructive scenario for agency RMB, Yes, and most agency RBS prices declined during the quarter, though performance across Subsectors diverge meaningfully.
Higher coupon of RBS fared reasonably well boosted by lower expected prepayments ushered in by the higher mortgage rates.
However extension risks really took its toll on lower coupon RBS. For example, the effective duration of Fannie may choose roughly doubled over the course of the quarter from around three years to around six years and as a result, Fannie Mae true prices plummeted by over four points.
As usual, we had a highly diversified portfolio. So we were not overly exposed to lower coupons, but our largest long TBA position was in fact in Fannie may choose and not surprisingly that position was the greatest drag on our results.
Despite these headwinds Ellington residential as book value was stable and core earnings remained strong during the quarter as you can see on slide four.
The rising long term interest rates generated gains on our interest rate hedges and interest only securities, which combined with our net interest income more than offset net realized and unrealized losses in the portfolio and we finished with a slightly positive economic return.
Thanks to a healthy net interest margin of 196% we generated core earnings of 31 cents per share, which continue to cover our 28 per share dividend.
Given the opportunities presented by wider yield spreads we used our strong balance sheet to add some attractively price pools during the quarter. These.
These purchases increased the size of our agency portfolio by 12% and while our debt to equity ratio rose incrementally to seven to one that leverages still well below our historical levels. So we still have ample room to increase our portfolio of further and thereby grow core earnings, especially should we see continued weakness.
Finally in response to continued tightening yield spreads in non agency MBS, we continued to monetize gains in that portfolio, which we had opportunistically ramped up during the market distress last spring.
I'll now pass it over to Chris to review, our financial results for the first quarter in more detail Chris.
Thank you Larry and good morning, everyone.
Please turn to slide five where you can see a summary of earned the first quarter financial results.
For the quarter ended March 31, we reported net income of $127000 or a penny per share and core earnings of $3 $8 million or <unk> 31 per share.
These results compared to net income of $7 $4 million or <unk> 60 per share of core earnings of $4 $2 million or <unk> 34 per share for the fourth quarter.
Core earnings excludes the catch up premium amortization adjustment, which was positive $70000 in the first quarter compared to negative $559000 in the prior quarter.
During the quarter long term interest rates increased actual and implied volatility rose and the yield curve steepened.
As a result agency RBS durations extend it and yield spreads widened and most agency MBS prices declined sharply, particularly those lower coupon or MBS.
During the first quarter, we continued to concentrate our long TBA and lower coupons and price declines in that sub sector generated significant losses as you can see on slide five.
In addition, the increase in long term interest rates reduced the demand for prepayment protection, which caused our prepayment protected specified pools to underperform.
Meanwhile, the rising long term interest rates drove net gains on our interest rate hedges and agency interest only securities, which along with net interest income more than offset the net losses on our long agency MBS holdings.
You can also see on slide five that our net interest margin decreased to 196% from $2, one 2% quarter over quarter, driven by lower asset yields which as we've discussed on prior calls is the combination of turning over our higher yielding non agency portfolio and agency arm B S.
And reinvesting at lower market yields.
You can also see here that we continue to benefit from very low borrowing costs.
In fact, if you turn to slide 18, which is our repo borrowing slide you can see that not only did our weighted average financing rate.
At March 31st declined three basis points to 22 basis points from December 31st, but we were also able to lock in these lower rates for a significantly longer period of time.
You can see on this slide that remaining days to maturity more than doubled quarter over quarter.
Shifting back to the asset side of our portfolio declining pay ups on our existing specified pool investments continuing with our focus on low pay up specified pools on new purchases caused the average pay ups on our specified pools due to decreased to 161% as of March 31.
As compared to two 4% as of December 31.
Please turn next to our balance sheet on slide six.
As Larry mentioned, we took advantage of some wider yield spreads during the quarter to increase the size of our agency <unk> portfolio, which we financed at very attractive rates.
As a result, our debt to equity ratio adjusted for unsettled purchases and sales increased two seven.
Zero to one as of March 31, as compared to $6 one to one as of December 31.
Despite this incremental increase we continue to maintain higher liquidity and lower leverage during the first quarter as compared to periods prior to the onset of the COVID-19 pandemic.
Book value per share was $13 22.
The March 31.
As compared to $13 48.
December 31.
Our economic return for the quarter was slightly positive with the first quarter dividend of 28 per share just slightly exceeding the decline in book value.
Next please turn to slide seven which shows the summary of our portfolio of holdings.
In the first quarter agency MBS holdings increased by 12% to approximately $1. One 8 billion as of March 31.
Our non agency MBS holdings decreased by 41% to $10 4 million as we continued to monetize gains in that sector.
Next please turn to slide eight for details on our interest rate hedging portfolio.
Our interest rate hedging portfolio continues to consist of interest rate swaps short positions in TBA ex U S Treasury Securities and futures.
Finally on slide nine you can see that our net long exposure to our MBS was $6 two to one at March 31 up from $5 six to one at December 31.
I will now turn the presentation over to Mark.
Thanks, Chris the.
First quarter was characterized by sharp move up in interest rates, a much steeper yield curve and with it higher levels of realized and implied volatility.
What's interesting is that the smoothed hiring rates and the yield curve steepening were of similar magnitude to the taper tantrum, but the agencies agency MBS performed much better this time around.
That was undoubtedly because the fed continue to steadfastly support the agency MBS market and in fact, there was not even though with of wavering of fed support.
Big Bear market Steepening move, which is what we had in Q1 are notoriously challenging from mortgage investors.
Yes, extending duration on the part of the yield curve, the selling them off faster than where previous duration hedges were dealt the hedges delta hedging costs eat into net interest margins and higher rates typically bring out of the salaries of mortgages.
A couple of those dynamics with relentlessly fast prepayments and you had a challenging fundamental backdrop this quarter.
Because of the lag between changes in interest rates and changes in prepayment speeds MBS have yet to reap the benefits of the speed slowdown from the rise in mortgage rates.
The offset is the technicals for MBS remain incredibly strong fed buying has been big inconsistent bank buying has been big inconsistent and low levels in many coupons have been strong.
The stock effect of fed purchases becomes more and more powerful over time, especially when the banks are also buying.
While MBS look expensive on the fundamental basis on a relative basis, the other spread products, such as corporates and high yield MBS look okay.
For the quarter, we did marginally better than breakeven, which was not the results. We were looking for but the higher rates and steeper yield curve are creating some better opportunities for us one nice thing is the spec pool pay ups came down with the interest rate sell off you can see this on slide four where I pay ups dropped by 80 basis points.
Some previously high pay up sectors that we had of avoided now look more attractive and this creates some nice optionality for us should interest rates drop further.
Also for production coupons duration extension has already largely happened given that the forward curve of already implies sharply higher future interest rates there isn't much more duration extension left even if rates increase further from here.
What is interesting is that the interest rate rise in the quarter almost brought yields back to pre COVID-19 levels on the 10 year note at the start of 2020, so pre COVID-19. The 10 year yield was one 9% it dropped down to 50 basis points last summer and then this quarter at $1 75 per cent.
<unk> book value was actually higher now than what it was pre COVID-19 and that's a really good outcome in a year of unprecedented volatility.
For the quarter, we grew our agency portfolio by 12% as you can see on slide seven. We also grew our net mortgage exposure as shown on slide nine which nets out our TBA short positions.
There were times within the quarter when mortgages were wider the swap hedges than where they ended up on March 31, and we took advantage of that.
Looking forward, we see of material prepayment slowdown in 30 year twos in tune of F. But the outlook for higher coupons is decidedly less clear and given the significant capacity buildup in the mortgage industry to accommodate record volumes. It may be the case that higher coupons don't slow down as much as anticipated.
So we will look to the prepayment report due out later this week and parts of our portfolio could benefit.
Turning to slide eight you can see that we increased our hedges significantly with the increasing increasing duration of our pools and TBA is at.
As Chris mentioned and as you can see on slide eight. We also took advantage of very attractive rates from the repo market to significantly increase the duration of our repo borrowings our average remaining repo maturities extended from 48 days all the way out to 102006 days.
The repo curve is very flat now and repo lenders are offering extremely favorable terms in our last round of financings, we were able to bar for one year at a rate as low as 18 basis points.
Looking across markets. The reach for yield is accelerating you see this everywhere you look there are bidding wars for complicated illiquid assets like subprime auto residuals and the Barclays High yield index now has the yield below 4% assuming no defaults.
Dynamics can certainly persist and just and looking just at roll levels certain MBS coupons. Currently look very attractive. However, we shouldn't lose sight of the fact that on most OAS models, which granted ignore the roll production coupons of negative OAS and that these models might even be understating, how negative of these OAS has really.
We are given that improving technology makes it more and more likely that prepayment models that derive predictions based on historical data are likely to understate prepayments.
So if we opportunistically add mortgage exposure to take advantage of the strong technicals of fed buying an attractive roles. We want to do so in liquid TBA coupons or liquid pools. So that we can easily change directions of the technicals change.
We see the MBS market today is very much tug of war between the great technical backdrop, and lofty valuations ROE levels are high borrowing cost of close to zero and the fed stock effect is getting more powerful every day. Furthermore, what's the anticipated GSE changes, resulting from the P. S. P. A agreement with the U S.
We think that some portion of the agency MBS market will be shifting back over the private label further reducing supply of agency MBS net of the fed.
But valuations are strong and largely already reflect these positives, we will be opportunistic and disciplined about our mortgage exposure and plan on taking advantage of lower specified pool pay ups to add back some of the deeper call protection that we let run off in the last nine months now back to Larry.
Thanks Mark.
I'm pleased that Ellington residential was able to protect book value and maintained strong strong core earnings and what was a challenging quarter for agency residential mortgage backed securities.
The quarter was in many ways reminiscent of previous periods of rapidly rising long term interest rates such as the taper tantrum of mid 2013 as well as the weeks following the U S presidential election of 2016.
I'd like to remind everyone that earn outperformed virtually all of its peers. During the 2013 taper tantrum and even more to our credit the actually had a positive economic return in the fourth quarter of 2016.
And in this past quarter. Despite the 10 year treasury yield almost doubling from 0.91% of year end to 174% at March 31, we again still managed to generate a positive economic return.
As Mark mentioned, we still like to catch up of the technicals for agency RMB, Yes, institutional investors remain flushed with cash and the federal reserve is still buying ads.
Add to that of big appetite from commercial banks for agency RMB yesterday, along with incredibly inexpensive and available financing for leverage investors you have lots of stabilizing forces in the market today, we expect this technical support to continue.
So with these factors in mind, we liked the opportunity to add some attractively price just specified pools during the first quarter, mainly around the volatility in February and March but we also hedged a good portion of those purchases with short positions in TBA is to protect against the downside and we are staying liquid as Mark mentioned.
The previous market shocks have taught us the importance of staying disciplined on risk management, including staying appropriately hedged.
Looking forward, we are seeing signs that the prepayment wave could be abating as markets mortgage rates are on the rise and fewer and fewer agency mortgages are refinanced the ball.
As we discussed on our last earnings call in this environment. It is critical to a both the prepayment risks and the extension risks that our president of the market and construct the portfolio that strikes a balance between these countervailing risks.
Just as we saw during the first quarter, we anticipate there to be substantial ongoing divergence of performance between different subsectors of the agency RBS market and we believe that such a rapidly shifting marketplace to our strengths where asset selection of risk management will continue to drive performance.
Across market cycles, and we've seen a lot of them over senior managements 35, plus years in the mortgage market. We will continue to deploy of dynamic and adaptive of interest rate hedging strategy to protect book value.
Dialing up and down our agency MBS exposure in response to market opportunities.
With that we'll now open the call to questions. Operator. Please go ahead.
Ladies and gentlemen, as a reminder, in order to ask a question. Please press star followed by the number one on your telephone keypad.
Pause for just a moment, while we compile the Q&A roster again Thats star one.
And of your first question is from the line of Eric Hagen with BTG.
Hey, Thanks, Good morning, guys I have a couple of here.
You noted speeds for higher coupons look somewhat unclear at this point can you elaborate on what you think is driving the direction of sensitivity of specified pools from this point forward are you guys looking for anything in this in this week's prepayment report that might offer clues into potential burn out and then can you address the premium exposure in the portfolio of the fair value Mark of somewhere.
Around half of stockholders' equity at this point can you talk about the approach in managing that premium.
If the bias is toward higher benchmark rates going forward. Thanks.
Yeah.
Sure Eric This is mark.
So I can address the first part about this week's prepayment report.
So I think this is going to be the first first prepayment report.
In several where the expectation is.
Is the slowdown in prepayments.
Driven by higher mortgage rates and I think the open question is.
How much capacity is the mortgage industry added over.
Over the course of 2020 to contend with the huge refinance wave and how much of the technological improvements that have put in place that only from the <unk> with the appraisal waivers.
And their day, one certainty of initiatives, but also just technology from some of the non banks that could click in and alone depot, how much is that going to.
Change the response function.
So you have of prepayment report, where certain coupons that had been in the money say Fannie two and a half are now not going to be in the money, but some other coupons say Fannie three and a half that had been significantly in the money are still in the money, but not as significantly and so I think the question is.
As sort of the easy refi pickings of ended has the mortgage industry and mortgage brokers shifted their focus to some of these higher coupons, which are a little bit harder to refinance sometimes they're more seasoned borrowers been in their homes for a longer so typically they'll need in the appraisal but.
Has there been a renewed focus on those types of borrowers such that youre not going to see the slowdown in prepayment speeds and that's really I think a big open question for the market.
One thing that we're gonna be.
Parsing the report very.
Parts of the report in great detail when we get it because I think that to me is the big open question how is technology.
Not only from the Gse's, but from the originators how is that changing borrower response to mortgage rates.
Thanks.
Maybe you guys can follow up on the on just how you're approaching the premium in the portfolio just running a portfolio of.
Of specified pools relative to TBA, if the if the bias is towards higher rates.
Yes.
Yeah, Hey, Eric It's Larry are you referring to what.
We sometimes refer to are you of just looking at the purely on the asset side of the balance sheet as opposed to also take into account. The TBA is what numbers are you looking at in terms of.
You said something about how our premium was half of our equity.
Right, Yeah, just the assets that Larry exactly okay. Yeah. So I think and this we give more details in the queue.
But it's all derivable from.
But I.
I think that if you take into account.
The.
Our short side as well.
It looks like that our net.
Net agency premium.
As a percentage of.
Share value of the home.
Net of pool holdings was four 4%, which is pretty much.
It's actually maybe even slightly on the low side I would say.
What it's been low.
Looking back several years.
But yes, so I think that's very manageable.
The weather.
Even if say rates sort of dropped a lot and we would.
Have another.
The payment.
The significant spike so I think I think it's very manageable.
Okay. Thank you.
Your next question is from the line of Doug Harter with credit Suisse.
Thanks.
You talked about the the 80 basis point, the Cline and the the pay up on the spec pools in the quarter can you just talk about how they performed relative.
To your hedges.
Sure Hey, Doug the market is a good question. So when we have specified pools.
We don't treat them as having the same duration of TBA.
We treat them as depending on what type of pool of is typically longer duration and we also treat them.
Having a yield curve exposure, a little bit different than TBA as well, so I'd say by and large specified pools for the quarter for some of the lower coupon sort of underperformed.
Underperformed slightly and the same thing with the higher coupons specified pools underperformed.
Under performed at least the way we see them.
Our hedge ratios versus TBA and it's you know.
Part of it was the theme that roles just continued to be strong and they really gathered the strength towards the end of the quarter.
Got it.
And then just on the Specialness of roles kind of what is your outlook.
You know for that.
And the kind of in the coming months and Yep.
When that might normalize.
So.
You know you have just pretty good visibility in that you know in the markets you can trade rolls that.
Settlement dates go out to July already so you can lock in.
Two months of Rolls, if you want to.
This.
Combination of fed buying and bank buying has been the strong technical I would say that.
The March and April were particularly strong technicals for the mortgage market and we sort of alluded to it a little bit in the call, but what happens is.
It's the way the fed decides how much theyre going to buy each month as they look at how much Paydowns day actually got and then the add 40 billion to it and so what happened in the second half of this quarter interest rates went up if you looked at the amount of mortgages originated as we're selling.
Each day that dropped a lot that went from about 8 billion of the day to about 6 billion of day as rates went up but because the fed buying is set based on their actual prepayments received and that's the lag versus when mortgages are sold they are sold and the borrower basically applies.
Had.
In March and April fed buying an outsized amount relative to new production right now.
Now there is a chance you can see that reverse a little bit because you.
The 10 year note ended the quarter at 175, it's $1 56, now or something so you've had about 20 basis point rally, but now youre going to get the slower speed report. So now the fed buying because actually gonna drop wall production of mortgages might increase a little bit. So this this lag between.
When.
The fed buys versus when mortgage rates changed.
<unk> sort of skew the timing of their purchases relative to production. So I think that.
You know the next month or so we think mortgages will be strong the other thing.
I think that can call that into question is if this rally persists you might see a little bit of a slowdown in bank buying REIT. So typically when you get the significant drop in rates bank will slow down the purchases and see if you get.
The drop back in rates so the.
The next couple of months I think there are strong, but I would say beyond that the technicals are probably not quite as good as what they've been for the last month or two.
And the other thing I would say is that.
When you're in the market.
Solely focused on the rolls, it's sort of.
It means you have a portfolio that's very concentrated in the particular coupon rate and we tend to like having.
Greater diversity you know.
Across the range of coupons.
Makes sense. Thank you.
Sure.
Your next question is from the lot of Macau Goldman <unk> with JMP Securities.
Hi, good morning.
For taking the question most of my questions have been.
Tended to just had a follow up on the leverage you guys mentioned that.
Perhaps have some appetite for further leverage going forward I was wondering how.
How high could it go.
If theres a range that you absolutely won't go past.
And just your overall thoughts on leverage going forward.
Hey, Larry how are you good how're you doing.
Yes, so we've in.
In the past we varied it obviously it was a lot lower.
In last spring.
It's never we've never gotten it higher than say 10 to one and we would probably only get to that level.
And in the mid to high <unk>, if we had a significant TBA short position against the long side, so, but I think in sort of normal times.
We think of it sort of between seven and <unk>.
<unk> nine handle in terms of the range just on absolute leverage lets just say ignoring the shorts.
That's true.
And.
Why we are in one range of another obviously can depend upon liquidity issues in the market, but also most importantly, it's kind of depend upon what we think of it.
The mortgage basis and things like that so I think that's a.
A good a good range to keep in mind just over market cycles. The other thing that can also make debt leverage ratio would be a little lower is.
When we have a lot more non agency REIT, because we're not going to leverage those as much and when we bought a lot of non agency and spring of last year, our leverage Didnt go up really that much because as a percentage of equity.
<unk> were not that great, but and we didn't even need to finance them.
With with repo, because we had plenty of repo capacity on the agency side of our financing is much cheaper. So that was a situation where we could gain a lot of coring of core earnings.
In core income.
<unk> by buying all of those non agencies.
Absolutely what happened without even increasing our leverage but just looking at the agency side I think the sort of seven handle the nine handle range is a good one to keep in mind.
Great. Thank you Larry that's a very detailed answer.
And if I may one just one more question on specified pools, you mentioned that you were you added significantly.
Last quarter, given the the fall in the pay ups and you saw a lot of good attractiveness in the specified pools.
Wondering what what kind of pools youre looking at.
Which are more attractive than the others as you see things right now.
Sure.
It's a great question.
I'd say, we added it was the significant but.
It was certain stories that typically come in the very high pay up that had.
Come up.
Come off a lot like there are certain stories, you know used to trade pointing to have the two points that all of a sudden you could buy you know what the half point there are five base of the point that's a big.
The difference.
Some of those stories, what we see from time to time are pools that when you run them on a model the model doesn't know that.
Most of the specified pools of deliverable of TBA and you can just sell them into of TBA right. So there's certain types of specified pools that when you get the steep yield curve.
Models are very punishing too because they might assign them the duration, that's two or three years longer than the TBA.
But in reality you know.
Yeah, if the pay ups not that high.
Always deliverable into TBA. So some of those stories, where you might see the OAS model gets the little bit to us looked pretty attractive right because they can really the pick.
Can explode on the upside.
Rally, but if you sell off they don't come off that much. So theres been some of that the other thing has been.
There's been a significant change in the WAC of.
Certain coupons right. So some of the higher coupons, you're now soon pools created that have a lot lower note rate.
The difference between the the <unk>.
And the coupon is a lot less than what it was.
A lot of last year.
So some of those pools are attractive to us the other thing as we mentioned in the script is that the gse's or making some changes into how much investor loans.
The originators can deliver to them and so we think it's making it marginally harder to for some of the originators to.
To offer.
Real aggressive refinancing terms on investor loans. So that was another story, we've liked as well.
Got it that makes sense. Thank you Marc that's it for me. Thank you guys.
Our final question is from the line of Jason Stewart with Jones trading.
Hi, Good morning, Thanks for taking the question Larry I wanted to pull back up a little bit and ask your view on inflation how.
How do you think the fed reacts to.
Your expectations for that throughout the summer and coding of taper and then how you position the overall balance sheet from that thanks.
Alright, Thanks, Scott Thanks, Jason.
So we try not to.
Yeah.
Our views of.
Such fundamental macroeconomic factors like inflation.
Hi.
Color too much how we position the portfolio.
So I mean, obviously, there's a lot of kind.
Selecting wins, there is a huge amount of stimulus.
On the one hand.
There's a lot of asset inflation, obviously already.
Whether it be real estate, whether it be.
The pine prices stock prices.
So you've got those wins on one hand, but then you've got the counter occurrence.
Continued globalization.
Issues with.
Sort of the.
The pricing power of labor things like that so.
Were.
Like I said, we're not going to.
Take our own opinions too seriously frankly in terms of.
Picking one side or another in terms of what that's going to happen obviously the fed we all know how the fed would react I think.
Yes.
Inflation got out of control for now it looks like they are not too concerned about that.
But.
I would say that we certainly would always do scenario analysis in terms of well what could happen to our portfolio. If this happens with inflation.
Or yes.
Or if it doesn't and so I think you'll you'll find if you look at for example, our interest rate sensitivity tables.
Which are in our deck and in our Qs and if you look at where along the yield curve, which you can see in the deck in terms of the breakout of our hedges, we hedge along the whole yield curve, we're not just hedging of the short end.
Which is what some people do it's obviously cheaper to do that especially with the steep yield curve. We have so we avoid all of those things and.
And we tried to be very disciplined in terms of thinking about where our edges REIT. So our edge as a portfolio manager. We believe is not prognosticating inflation interest rates or what the fed will do.
From a macroeconomic perspective.
But more in terms of where under various different scenarios of what could happen to macroeconomically, what will happen to our portfolio and what is the best risk reward in the various sub sectors.
Great. Thanks, I appreciate the perspective thanks.
Thanks.
Ladies and gentlemen that concludes today's Q&A session.
Thank you for your participation of the extra day now disconnect your lines.
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Yes.
Okay.
Okay.
Sure.
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The next day.
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