Peter Federico: Yes. Well, we certainly have a lot of capacity the way I would describe it today, a lot of flexibility. And I think that’s appropriate because we are moving, it sort of made this, I mean in our – in my initial remarks that we are moving in a positive direction, but we are still moving essentially in that direction slowly, and there is going to be volatility along the way. And we want to be disciplined with our capital deployment and our leverage because monetary policy is still evolving. There is lots of variables that are going to drive the Fed. Over time, we are going to get more clarity. And there may be a time where we have even more confidence in the outlook. But our confidence is growing. We have a lot of – as Bernie mentioned, we have a very strong liquidity position of $5.4 billion.
As a percent of equity, I think it maybe was one of our highest points just last quarter at 67%. If you think about that on our assets, it’s over 8%. So, we have a lot of capacity, but we also want to be disciplined. And what’s important about the outlook from our perspective is that we think we are entering a period that’s going to be from a long-term durable, attractive investment opportunities, so we don’t feel any rush to deploy capital. We feel like we can be disciplined. We feel like we can continue to be opportunistic like we were in the first quarter. And so the environment is going to evolve over time. Our confidence will grow. Mortgage spread behavior within the trading range is important. And I think what we are starting to see is some consolidation in that spread, which I think is a healthy development for the market.
Said another way, for mortgages to move to the high end of the range, I think it’s becoming more challenging for that to occur. And there is growing reasons why mortgages can trade at the lower end of the range. We just haven’t seen them all evolve fully yet, but we will see that over time, and we will see how the economy unfolds over the next three months to six months and how the Fed’s behavior and the Fed outlook changes. That’s really going to be a key driver for the fixed income market is what happens to monetary policy because once the Fed starts to ease, I think ultimately, the market will price the Fed moving the Fed funds rate all the way back to 3%. But they have to start that move from a place of confidence and the market doesn’t have that confidence, yet the Fed doesn’t have that confidence.
Doug Harter: Great. Thank you, Peter.
Peter Federico: Sure. Appreciate that.
Operator: Our next question comes from the line of Jason Weaver with Jones Trading. Please go ahead.
Jason Weaver: Hi. Good morning. I was hoping you could expand a little bit more on Doug’s first question there. The 25 million shares you issued during the quarter, can you talk a little bit about the timing and coupon deployment of that capital in the quarter and subsequently.
Peter Federico: I am sorry, could you repeat the first part? I didn’t have a little to here in your question.
Jason Weaver: Sorry, Peter. I was just trying to expand on the answer to Doug’s first question about the timing and deployment of the ATM issuance you raised in the first quarter.
Peter Federico: Well, yes, like I have said, the ATM gives us a lot of flexibility. So, we were able to raise money through our – through the ATM program and deploy it immediately. As Chris mentioned, you could talk about where we would like a coupon staff. But that gets deployed really simultaneously almost.
Chris Kuehl: Peter mentioned the $3 billion increase. That was a fair value increase. We added roughly $4 billion in Agency MBS during the quarter in current phase terms. Majority of which was in higher coupon 30-year TBA. We also added about $400 million in hybrid ARMs.
Jason Weaver: Was that sort of weighted throughout the quarter or weighted towards the beginning or end? Can you speak to that?
Peter Federico: No, we usually don’t give those sorts of detail. I appreciate the question, but…
Jason Weaver: Fair enough.
Peter Federico: Yes.
Jason Weaver: No, that’s fine. And here is – what were you thinking about the implications for the Fed’s reduction in Q2 and how that might change your portfolio strategy, hedging strategy?
Peter Federico: Well, as Chris mentioned, just real quickly, I will make a couple of comments. As Chris mentioned, obviously, the Fed is going to move first and significantly with respect to its treasury portfolio. So, I expect the Fed to announce next week at the meeting that they will cut the treasury cap by half. It does not appear based on the minutes that they are going to make a change at this point to the mortgage cap because the mortgages are running off so far below. They are actually running off at about half of the cap right now. So, I don’t expect the Fed to make a change on that. But I do expect treasuries to come down and over the remainder of the year, I expect treasury run-off cap to actually come to zero. And that has a positive development generally speaking, for treasuries versus swaps.
When you think about bank regulation and the fact that bank regulation is going to be less onerous, I think that’s going to also push us to, as Chris mentioned, to swap. So, I think that’s where it has an implication from a hedging perspective. Longer term, I think it’s still unclear exactly how the Fed is going to handle its mortgage portfolio with respect to its changes to its balance sheet. And this is going to be an important development. Last week, for example, there was a paper that came out from the open markets desk at the New York Fed, where they show two examples of how the Fed may approach tapering its portfolio runoff. And in both of those scenarios, they had the mortgage cap getting cut in half. Now, that won’t have any practical impact on the speed of runoff because mortgages for the Fed’s portfolio are running off between $17 billion and $20 billion.
