That can definitely happen again. Now why do I say that? The yield curve is almost flat like a pancake at 5%, okay? So now for the first time, investors can look out of the yield — look out the yield curve and say, hey, I can earn a 5% yield, you know, for taking duration risk. And in mortgages, you can actually earn a spread over the financing cost. These are very positive, sort of, inherent things in the way the market is structured today. But you’ve got to get through this technical pressure first. So the number one thing that’s keeping mortgages from tightening right now is this is the supply technical. The number one thing that’s going to get mortgages to tighten from here is a demand technical. And that demand technical has got to come from a marginal buyer.
That marginal buyer right now is really investors, any investor that’s basically willing to take that duration risk. And investors will make that decision, we think, when they believe the Fed is done, which the Fed is kind of telling us we’re close to being done, right? And when they feel like they’re being adequately compensated for taking on that risk, which the curve has deepened, and that risk premium has been built back into the curve. Now, whether that’s enough or not is yet to be seen, but the factors are here for that switch to occur.
Matthew Erdner: Got it, that’s helpful. And then one quick question on the portfolio. You guys have trimmed the TBA position for the past couple of quarters. Should we expect that to continue going forward?
Smriti Popenoe: We like the TBA position where it is. We believe that having a mixture of TBAs and pools is a very smart thing to do here in this, kind of, an environment. TBAs are very easy to trade. So I don’t think we’ll be moving that exposure much higher here from this point on.
Matthew Erdner: Yes. Thank you.
Operator: Your next question comes from the line of Eric Hagen from BTIG. Your line is open.
Eric Hagen: Hey, thanks. Good morning. I think a couple here. I mean, a follow-up on leverage and maybe just how you think about your own stock valuation, just where you could trade and the cost of maybe raising incremental capital in light of that leverage? And then the second one here, I mean, just how sensitive are you to additional realized gains from the hedge portfolio if rates are expected to keep on rising, like what is the offsetting benefit to maintaining that structure of the hedges if there’s this realized gain to think about on top of that? Thanks.
Smriti Popenoe: Hi, Eric. I’ll let Rob answer your second question first, and then I’ll take the leverage question after that.
Eric Hagen: Great. Thank you, guys.
Rob Colligan: Yes. Eric, so can you clarify your question a little bit on realized gains?
Eric Hagen: Yes, just like how sensitive you guys are to taking additional realized gains from that hedge portfolio if rates are rising and you know just explaining, kind of, like what the offsetting benefit is to maintaining that structure of hedges if we have to think about this realized gain component too?
Rob Colligan: Got it, got it. Yes, you know I think we come in today and every day trying to figure out which direction we should go in and how to best position in the short-term, right? So that’s one of the focuses. As I mentioned earlier, we’ve had over $100 million of realized gain, or I’m sorry, of gain, our features roll quarterly. So they haven’t been realized, but if the quarter ended today, we would have over $100 million of gain that we will have. And if you were looking at this in terms of an equivalent swap, you know, that would be coming to us over time. The nice thing about the feature is we have that cash in our pocket today and can be very flexible with that and can make adjustments very quickly. But, you know, we’ve done a very good job of managing rate risk really from early 2020 to now and you can expect us to continue to do that.
