Peter Federico: No, that’s a great question. And the first answer to that is absolutely not. There wasn’t a moment where we felt like there was any forced action. And what I would say is that if you think about our position over the course of the quarter, we actually started taking steps because the market actually sort of had a sort of a pronounced shift in sentiment that occurred late in July. And as Chris mentioned in his prepared remarks, the footing for the bond market was actually really positive for the first three weeks of July, both in the treasury market where treasury rates, the lower 10-year treasury rate, was July ’19, and I think it was around 380 at that time. So and as Chris mentioned, mortgage spreads actually tightened for the first three weeks.
So the market was on a really good footing until the discussions from the Fed started coming out about the term premium and then ultimately, what really set the whole thing in motion was to move in treasury supply and expectations about that. So in August, things were sort of illiquid and we were taking actions throughout that time to maintain the leverage that we were comfortable with. Our leverage really never got anything above what we just reported at 8.2%. Our cash position throughout that time-was in the high 50s at each month and just like it had been. So we were never in a position where we were forced to do anything that we didn’t want to on a day that we didn’t want to, but what I think you are getting at is the challenge that is starting to reveal itself in both the treasury market and the agency MBS market and in agency MBS market, in particular, and this is why I think Agency MBS tend to underperform in the down trade like we just experienced, is that the market is generally speaking, very illiquid at times because the flows in the — particularly in the agency MBS market and to an extent in the treasury market, tend to be one-way flows right now with the Fed backing away in running off its balance sheet.
And given the constraints that are being potentially put on banks, it really leaves the money manager community as the key buyer or seller of securities. And when you get in an environment like we got in, in August and in September, the fixed income sentiment turned negative and bond fund flows turned to be outflows. And when bond funds get outflow and redemptions, they just simply sell the most liquid securities that they can sell, which are treasuries and agency MBS. And that’s why, as Aaron pointed out, corporates didn’t move very much at all. In fact, corporate spreads are relatively unchanged. It looks like a great environment for corporates, yet the selling pressure from money managers was coming in sort of a one-way flow. That seems to have subsided.
That will stop and the market can move very quickly to the other direction. So for our portfolio, we try to do is we try to take actions early on these and sort of take smaller actions on time sort of delta hedge as we go and never be put in a position where we’re forced to delever and that certainly was not the case in the third quarter. We were operating with a position that we were comfortable operating with throughout the quarter.
Richard Shane: I guess the challenge of having permanent capital is that there are decisions that you have to make that someone who just has experienced outflows doesn’t have to.
Peter Federico: Well, that’s exactly right. And that’s the challenge. And sometimes you have to make decisions. For example, we made decisions to sell some securities, which unfortunately, you don’t like to do because they are cheap, but there will also come a time when we’re comfortable adding more securities and the outlook from a spread perspective will be a lot better than it was at times during the third quarter. And maybe some of that improvement is starting to reveal itself right now.
Richard Shane: Thank you. I apologize, I’ve taken too much time. Thank you, guys.
Peter Federico: I appreciate the question, Richard.
Operator: Our next question will come from Trevor Cranston with JMP Securities. You may now go ahead.
Peter Federico: Good morning, Trevor.
