Chris Kuehl: Yes, so our funding is obviously SOFR-based. And so logically, we want to have generally a more significant portion of our hedges and SOFR-based swaps, which also have better carry. But over the last couple of years, the bid for mortgages was highly correlated with treasuries, given the dominant investor base were index funds as opposed to banks. And so, it made sense to have a more sizable component of our hedge book in treasury based hedges. U.S. Treasury issuance was also extraordinarily high at a time when banks were not in a position to grow the securities holdings. And so that had the effect of cheapening treasuries versus swaps. And now with bank deposits stabilizing and QT likely drawing to an end, we’re gradually moving our hedge book to have a higher concentration in swap-based hedges. But this will be a gradual shift, and we want to maintain diversification within our hedge portfolio composition just as we do on the asset side.
Terry Ma: Okay, great. Thank you.
Peter Federico: Sure. Thanks for the question.
Operator: Our next question comes from the line of Crispin Love with Piper Sandler. Please go ahead.
Crispin Love: Thanks. Good morning. I appreciate for taking the question, thanks. Good morning, Peter. Just looking at fund flows, bond flows have been very positive. Government fund flows have been positive as well, which have positive implications agency, but only tells part of the story. So can you just speak to what you’re seeing on the flow side? Who are the major buyers right now of Agency MBS? I think you mentioned a little bit about banks coming back in the first quarter, but do you think some of the recent rate moves could keep some of them on the sidelines for a bit?
Peter Federico: Yes. Well, we certainly did see that. You’re right. If you look at the – and this is part of the reason why didn’t feel like a paradigm shift in why the first quarter was not nearly as disruptive despite the amount of repricing that took place because bond fund flows generally stayed positive throughout the quarter, there was probably a week or 2 where they actually got to zero, maybe negative, but there was never really any big movement out of bond flows like we saw at different times last year. So the bond fund flows continue to be neutral to positive. I think we’re also starting to see outside the bond fund complex inflows into mortgage-backed securities. Those flows are obviously hard to quantify, I think they are evident in particular, if you look at the way the mortgages performed across the coupon stack were lower in the first quarter where lower coupons underperformed in higher coupons.
The current coupon are really above the 6 and 6.5 in particular – actually tightened on the quarter. I think that shows you that there’s new demand for those sort of high-yielding securities. With the backup that we have, the current coupon now at around 6.5% that, again, looks really, really attractive to treasuries. It also looks really attractive to investment-grade corporates. That spread has again widened out to around 30 basis points. So mortgages look cheap to investment grade. Corporates – current coupon in particular or the highest yielding ones. They look cheap to treasuries. I think the credit quality, obviously backed by the support of the U.S. government, helps in an environment where the economy is ultimately slowing. So I think those are going to continue to drive demand for agency mortgage-backed securities not so much on a levered basis, but actually on an unlevered basis, and that has a really positive long run fundamental.
So I think that – I think that trend is going to stay in place for a while. They just – those reallocations tend to take time for slow-moving reallocations.
Crispin Love: Great. Thanks, Peter. Appreciate taking my questions.
Operator: Our next question comes from the line of Doug Harter with UBS. Please go ahead.
Peter Federico: Good morning, Doug.
Doug Harter: Good morning. The way you’ve kind of described the market, how are you thinking about continued capital raises and the attractiveness of that opportunity?
Peter Federico: Yes, I appreciate the question. Well, obviously, we always look at it through the lens of our existing shareholders, first and foremost. And as Bernie mentioned, we were able to raise capital through our at the money program, at the market program very accretively in the first quarter. And we’ll continue to look at those opportunities. The first quarter is a really good example of one, the cost-effective nature of that capital issuance, the book value accretion that can be generated by it, but also the flexibility that affords us. As Chris mentioned, we added about little over $3 billion worth of mortgages in the quarter. If you think about that, given the amount of capital we raised, we were able to deploy those proceeds immediately into the mortgage market.
About half of those purchases if you will, went towards levering that new capital immediately. So there’s no drag from a dividend perspective. It’s accretive to book value. That translates to value for our existing shareholders. We will continue to look for opportunities to do that. I like mortgages better. Obviously, at this level, mortgages did spend a lot of time in the first quarter near the tighter end of the range, which gave us a little bit of pause. But we will continue to be opportunistic with it if we can generate existing value – we can generate value for our existing shareholders through our capital markets activities, we will certainly look to do that.
Doug Harter: And then Peter, just contrast…
Peter Federico: I am sorry, Doug, go ahead.
Doug Harter: Yes. No, sorry. And if you could just contrast that with kind of how you see leverage today and kind of how leverage might move around given kind of book value weakness but also ability to add – protect and/or add new assets?
