Peter Federico: Right. That would be an apples-to-apples comparison. I’m doing it from that perspective. Yes. And what I was trying to point out with that with my prepared remarks on the dividend is that it’s important to look if you’re going to look at what can you earn? It’s — what are you — what’s the right comparison to that. And for us, you got to look at it what can we earn on our portfolio versus our entire cost of capital. And that’s why it’s important because our preferred stock does give us a meaningful benefit given the fixed dividend of around 7% on that capital. And obviously, over time, that relationship will continue to change. Right now, we’re operating with about 23%, 24% of our capital in preferred stock. So you are right, but if you did that calculation, like you just suggested, you would get ROEs in the low 20% range, which would align, again, very well with the 18% that I referenced at the end of the third quarter.
Bose George: Yes, perfect. That makes a lot of sense. Thanks. And then just to confirm, the 11% decline in book value that’s after accruing for the dividend, right? So it’s like a 7.25 mark-to-market.
Peter Federico: Yeah, I’ll stick with the 11% as opposed to giving you a point estimate. But, yes, that does. And the estimate that obviously what you can tell is that when we gave our numbers out a week ago. By the way, we released them because that’s typically when we would have released them. This call happens to be about a week later than it normally is for schedule of reasons. But the market was, in fact, weaker a week ago than it was just last week, as I mentioned, mortgages have found some footing and have begun to improve and 11% is a reasonable number for right now.
Bose George: Okay. Great. Thanks.
Peter Federico: Yeah. Thank you for the question, Bose.
Operator: Our final question will come from Eric Hagen with BTIG. You may now go ahead.
Eric Hagen: Yeah, thanks. Good morning. Maybe just a follow-up actually on the structural leverage and the mix between preferred and common and really just how — just kind of how you think about that leverage and what you’re comfortable with over maybe shorter and longer periods of time. And even how you think that leverage kind of retraces and affects the valuation of the common stock and what you guys might be willing to tolerate right now and over, again, kind of longer periods from that respect?
Peter Federico: Yes, thank you. Over the longer run, we’ve operated with our preferred mix right now in low 20 range for the last several quarters. It’s been 22%, 23% at the end of last quarter. It’s ticked up as the book value has declined, has been absorbed by the common that percent has gone up to around 24%, and we’re comfortable operating in that range. I don’t expect it to change much. It does give us the benefit that you’re talking about with respect to our overall cost of capital. But also importantly and I think this sort of gets to part of your question, when you think about our sensitivities and from a risk management perspective, the sensitivities that we disclose, for example, our interest rate sensitivity and our spread sensitivity is based on the common component of that.
So from a risk management perspective, we are looking at that sensitivity, obviously, as a driver of how we’re making decisions about our overall leverage position, our overall interest rate position and our overall liquidity position. I think it’s appropriate to think about tangible at risk leverage as being based on your total capital base because our preferred is permanent capital that we can use. But I think from a risk perspective, you want to look to the sensitivity on your common only, and that’s why we break it out that way.
Eric Hagen: Yes, that makes sense. Okay. Just a question on the hedging here and how high you envision the hedge ratio getting just given the shape of the yield curve and maybe even anything you’re looking for this week in the Fed meeting that can maybe change your posture towards taking a duration gap going forward. Thanks.
