Release Date: April 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can you update us on how the book has performed so far in April, and given the spread widening, is that enough to change your year kind of look on the market and moving off a neutral stance?
A: William Greenberg, President and CEO of Two Harbors, mentioned that as of last Friday, the book value is estimated to be down between 1.5% and 2%. Nicholas Letica, CIO, added that the current market conditions and spread widening have not significantly changed their outlook or positioning. They maintain a neutral risk profile and believe that while mortgages offer long-term value, the market is still prone to volatility.
Q: How willing are you to be opportunistic and more tactical during bouts of volatility, sort of trading the range, versus holding a longer-term neutral defensive position?
A: Nicholas Letica explained that they respond to market developments daily and are positioned to take advantage of spreads if they are opportunistically wide. However, they prefer to keep their mortgage exposure in a neutral range due to the ongoing market volatility and the current range of spreads.
Q: Can you comment on whether there have been any significant changes to the portfolio in April in terms of coupon composition?
A: Nicholas Letica confirmed that there have been no significant changes to the portfolio from the quarter-end to date in terms of coupon composition.
Q: Given the outperformance of spec pools relative to TBAs over the last few months, can you give us an update on how you think about the relative value between specs and TBAs right now?
A: Nicholas Letica remarked that they continuously compare where pools are trading to TBAs and make relative value judgments. Currently, they see the value proposition across the coupon stack as pretty flat and prefer higher coupons as the lower coupon market seems well priced.
Q: Noting your comment on expected lower supply, where do you see incremental returns on new MSR today and what does the relative value look like between production coupons and seasoned deals?
A: William Greenberg, President and CEO, noted that the value proposition between low and high coupons is pretty flat, with returns on an unlevered unhedged basis in the low teens and levered and hedged in the mid-teens. He emphasized the discipline in pricing to ensure worthwhile returns in the market.
Q: Are you making any additional changes to your hedging approach, given the consensus view of a higher for longer environment with potential volatility ahead?
A: William Greenberg clarified that they generally keep their interest rate exposures low and do not anticipate significant changes to their hedging approach. The MSR and MBS are factored into their calculations to determine the need for additional hedges, aiming to maintain low interest rate exposures.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
