Matthew Howlett: Hello. Hi, good afternoon. Hi, Jay. Hi, everybody.
Jay Lown: Hi, Matt.
Matthew Howlett: Thanks for taking my question. Just on the comments on RMBS and value and spreads. And I think I heard you correctly where you said sort of – you don’t see a lot of catalysts for things to tighten here. And in the least in the short-term, I want to hear how you look at value. Do you look at like – how do you look at spreads to treasuries you look at other – how do you address value in the RMBS space? And what are the signs you need to see where sort of spread widening is done and it’s time to kind of go in is it just a Fed needs a signal, they’re going to cut rates or the Fed needs to stop running off their book. I just love the hearing because everything we read is at RMBS is just cheap the corporates and it’s this huge value, there is not a lot of supply, Fannie’s book came down and that’s why it’s going to tighten spreads here in the back half of the year.
Julian Evans: Yes, so. Hi, Matt, this is Julian. Look, I think when we look at agency RMBS in the past, we’ve looked at them versus swaps. Now that the swap curve has kind of gone away the question is, do you want to look at them versus SOFR or treasuries. I’d say on a nominal basis, we’re looking at them versus treasuries, we still run OAS to kind of see where mortgages are. I think those two are effective tools in terms of trying to figure out the valuation. In terms of spreads. I think, look, I think, we’ve all looked at spreads from a historical standpoint on a nominal basis. And if you take a look at them over the 5-year timeframe, they are very attractive from a historical standpoint. I think if you look at the average over the 5-year timeframe, it’s like 283 spread.
And right now, we’re probably about 175 given the widening that we’ve had continuing over the last couple of days, it’s been as high as 200. In our mind, I think that chops around I think it’s going to chop around a little bit, given that volatility has comes and goes all the time, it seems as of late, and it can come from anywhere in terms of statements either by our own Fed or from other central banks globally at this point in time. And I think what you’re asking for is, when will you finally see some type of tightening that’s more continuous then what we have experienced so far. I think you need stability in rates. I think you need volatility to kind of stabilize, if not truly be able to maintain the lower levels and continue forward.
I do think that you need the banks to feel comfortable coming back into the market to buy mortgages. I think a lot of people have bought mortgages, that the wider levels 175 to 200 in that particular range, I think you’ll find a lot of the indexers or investors we’ve had been on the sidelines, are kind of neutral to kind of overweight at this point in terms of mortgages. There is no doubt that they are attractive from a long-term, but over their short-term timeframe, if volatility continues to move the way it is, I think it’s going to be hard for them to tighten and stay there continuously. And I think it’s the reason why we continue to hold TBA shorts in the portfolio.
Matthew Howlett: Makes a lot of sense. And as spreads – did you say spreads did widen here this past week with a soften…
Julian Evans: Yes, looks they have wide.
Matthew Howlett: Okay, good. Well, look, it makes sense, what you’re saying and keeping the short TBA position. My next question is this. I mean, we all try to kind of figure out where how much excess capital each REITs has, and where they could take leverage up to and it’s hard to do it, no holistically across the space. So I want to ask you when you look at your leverage just over 4 turns in your asset mix with 40% RMBS and 43% servicing, I mean, what – when you talk about full deployment of where you could take the portfolio to or where you could take leverage to, I mean how should we think – I mean, how should we think about some REITs say 9, 10 times, but I know you have some MSRs, I mean, how do we look at your balance sheet and how much excess capital there could be when you finally decide to say let’s add some RMBS?
Jay Lown: No, it’s a great question. I think that we have been holding more cash than I think I would like to in a normal stable environment. But I think this week is a perfect example as to why we do that still just given the margin calls around the spread widening is weakening in that side of the house. I do think that as you get closer to the end of the year and you get closer to the end of the Fed cycle that there is enough is going – there is going to be an opportunity to take up leverage whether that’s 1, 2 turns or whatever, we don’t have that dialed in yet, but I think that as Julian pointed out, as other REITs have as well, when the spreads start to widen at specific points in time, we do try to nibble in when we think there is value.
