Dynex Capital, Inc. (NYSE:DX) Q4 2024 Earnings Call Transcript

Dynex Capital, Inc. (NYSE:DX) Q4 2024 Earnings Call Transcript January 27, 2025

Dynex Capital, Inc. misses on earnings expectations. Reported EPS is $0.1 EPS, expectations were $0.38.

Operator: Thank you for standing by, and welcome to The Dynex Capital Fourth Quarter and Full Year 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I’d now like to turn the call over to Alison Griffin, Vice President of Investor Relations. You may begin.

Alison Griffin: Good morning, and thank you for joining us for Dynex Capital’s fourth quarter and full year 2024 earnings conference call. The press release associated with today’s call was issued and filed with the SEC this morning, January 27, 2025. You may view the press release on the homepage of the Dynex website at dynexcapital.com, as well as on the SEC’s website at sec.gov. Before we begin, we wish to remind you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, forecast, anticipate, estimate, project, plan, and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.

The company’s actual results and timing of certain events could differ considerably from those projected and/or contemplated by those forward-looking statements as a result of unforeseen external factors or risks. For additional information on these factors or risks, please refer to our disclosures filed with SEC, which may be found on the Dynex website under Investor Center as well as on the SEC’s website. This conference call is being broadcast live over the Internet with a streaming slide presentation, which can be found through the webcast link on the homepage of our website. The slide presentation may also be referenced under Quarterly Reports on the Investor Center page. Joining me on the call today are Byron Boston, Chairman and Co-Chief Executive Officer; Smriti Popenoe, Co-Chief Executive Officer and President; Rob Colligan, Chief Financial Officer and Chief Operating Officer; and T.J. Connelly, Chief Investment Officer.

I now have the pleasure of turning the call over to Byron.

Byron Boston: Thank you, Alison, and good morning, everyone. We continue to advance Dynex along the path of growing a resilient, sustainable business for the long term. We are focused on delivering value at the intersection of capital markets, and housing finance where we believe there will be sustained opportunity to generate compelling yields. Demographic trends continue to support our thesis for financing residential real estate. The single-family housing market has sown resilience in the face of higher interest rates and multifamily housing continues to be an area of growth due to the high demand for housing. The team is diligently assessing the best risk-adjusted returns which currently remain an agency-backed single-family residential MBS.

As the Chairman and Co-CEO, I’m excited about the company we are and the company we are becoming. We are well positioned for the global macroeconomic landscape, which is moving rapidly. Upcoming policy changes are likely to have a significant impact on people, economies, and financial markets. The investment environment continues to offer significant long-term value in the agency RMBS market and as Smriti will describe, the team is focused on flexibility as we navigate the year ahead.

Smriti Popenoe: Thank you, Byron. Today, I’m pleased to announce the appointment of T.J. Connelly as our Chief Investment Officer. T.J. has a brilliant mind and is a wonderful person whose career I followed since our early days together at Freddie Mac. It has been a delight working with him at Dynex since 2023. He embodies our core values and is already a key member of the Dynex leadership team. I’m really excited for his fresh perspective on our investing strategy, and I wish him great success in this role. Byron and I continue to build the company across the dimensions of people, process, and technology. In 2024, we achieved meaningful progress building a solid foundation for our company. We added three new Board members with strong skill sets across technology, risk, asset management, and strategy.

We grew our common equity capital to over $1 billion and deployed it wisely as the market gave us opportunities. The year-over-year growth in our common capital base of over 40% drove significant benefits to scale, which Rob will outline in more detail. We expanded our investor outreach, meaningfully increased trading liquidity in our stocks, raised our dividend to reflect our confidence in the return environment, all of which has translated to a solid improvement in the price-to-book ratio. We believe Dynex deserves, and will attain a premium to book value valuation. The share price does not yet reflect the meaningful benefits of future growth, much improved liquidity in the stock, nor the ethically managed high-quality liquid investment products we deliver.

We will continue to drive effort in this direction. Most importantly, we are building a track record to be proud of. Through December 2024, among agency focused mortgage REITs, the Dynex team has generated the leading total shareholder return for one, three, and five years inclusive of the dividend, a result produced during some of the most challenging market conditions post great financial crisis. When you include non-agency and credit-focused mortgage REITs with market caps above $500 million, Dynex leads on a one and five-year basis and has the second-best record on a three-year basis. Last year’s 7% total economic return and 13.7% total shareholder return was delivered in an environment where the 10-year treasury yield made 200 basis points round trips and mortgage spreads, though better behaved in 2023, traded in a 40 basis point range.

We are producing strong industry-leading returns. The experience and expertise of the team has been invaluable in building this record and will continue to be a differentiator for Dynex in the future. I’ll now turn it over to Rob and T.J. for a more detailed financial picture of 2024, our current thinking, and our outlook for 2025.

Rob Colligan: Thank you, and good morning to everyone joining today’s call. The Fed’s three interest rate cuts in the second half of 2024 provided a great tailwind for our portfolio and for the first time in two years, the yield curve has un-inverted, allowing us to invest in assets with a positive carry while the swap book is still net positive and adds net spread to the portfolio. During the fourth quarter, the 10-year treasury was up nearly 80 basis points, and from the end of the third quarter mortgage spreads were broadly wider. Book value ended the quarter at $12.70 per share, and the economic return was 1% for the quarter, and 7.4% for the year. Leverage was up as we added pools and TBAs during the fourth quarter during periods of spread widening.

Interest income was up from the third quarter from the active addition of higher-yielding assets into the portfolio, while older lower-yielding assets continue to pay down. We kept our financing book short in anticipation of cuts to the Fed funds rate and we leaned into lower borrowing costs as soon as they were available. In the second half of 2024, and particularly in the fourth quarter, we rotated a large portion of our hedge position from futures to swaps. Given this change, you’ll see an improvement in our net interest spread as the periodic swap income received is included in the spread metric and has enhanced portfolio yield. T.J. will cover hedge strategy and construction more in his comments. Please see Page 6 in the earnings release covering the hedging portfolio and Page 10 in the earnings presentation for more detail on this topic.

In the fourth quarter, we raised $64 million of new capital and we continue to keep ample levels of liquidity to deploy into markets like we’re seeing now, marked by higher yields, wider spreads, lower financing costs, and a supportive derivative market to hedge our portfolio. For the full year, we grew our common capital base by $332 million and drove our expense ratio down by 70 basis points. Year-over-year, we’ve kept non-compensation expenses essentially flat to 2023, while executing on several important strategic initiatives, particularly on the IT and marketing fronts. Expense management will continue to be a focus going into 2025 to ensure our expenses create value for the portfolio and our shareholders, underscoring the benefits of scale.

As we have grown, we have narrowed the price-to-book ratio, which has been a significant benefit for our shareholders. This allows us to continue to grow, achieve scale, and deploy capital into an attractive market. A REIT at scale is a more valuable company and will continue to attract a higher price-to-book multiple over the long term. I’ll now turn it over to T.J. for the investment portfolio outlook.

T.J. Connelly: Thank you, Rob. It’s an honor to have the opportunity to lead the investment process at Dynex. As only the third CIO since 2008, I have tremendous examples of stewardship to guide me in this role. I joined the team in 2023 for two reasons. First, after 12 years working with the Dynex team as an external partner, I had the opportunity to get to know nearly everyone at the company. and I could say without question that this is one of the best and most underappreciated mortgage investment teams out there. Second, the opportunities in mortgage-backed securities remain some of the best I’ve seen in my career. Government intervention continues to ease, allowing private capital to earn a significant interest income premium relative to other fixed-income products.

Extracting the yield in mortgages requires immense skill and discipline. I continue to believe that Dynex’s team and infrastructure are uniquely positioned to deliver equity like returns from this fixed income product, and I’m excited to leverage this team’s talents for a larger investor base. Thoughtful risk management focused on leverage and liquidity will remain the hallmark of our process. Government policy has always been part of investing in US fixed income. This year, investors will likely hear more about the potential for GSE reform. Our base case for the coming year is that talk of reform could create volatility and spread, likely offering an opportunity for us to deploy capital creatively, much like we did last year around the election.

GSE privatization could have significant implication for housing finance, especially as stretched affordability, and inflation continues to weigh on households. Two things will be central to the dialogue. One, the GSEs need to raise significant capital to meet regulatory thresholds, and two, the treasury guarantee and existing line of credit will be critical to maintain the stability and liquidity of agency MBS. The team at Dynex monitors these developments closely and is actively engaged with Washington to remain at the forefront of policy changes. In the fourth quarter, we added value in four ways. We raised capital at attractive levels, deployed that capital when spreads widened into the election, collected securities with better risk characteristics, and shifted our hedges at the tights in swap spreads.

Our book-to-value also benefited from the long-dated hedges as the yield curve steepened. Specifically, we raised $64 million in new capital in the quarter. We deployed that and the capital from previous quarters buying $900 million 30-year 4.5%, 5%, and 5.5% coupons split about 50/50 in TBA and specified pools, increasing leverage from 7.6% to 7.9% in the quarter. We like the flexibility of TBAs and balance that against call protection in specified pools to optimize hedge costs. We continue to execute a major shift in our hedge strategy, moving over two-thirds of our hedges from futures into interest rate swaps at historically advantageous levels. Interest rate swaps can enhance our portfolio ROE by 200 basis points to 300 basis points after adjusting for their higher initial margin requirements.

The fourth quarter saw the recent tights in swap spread, which we believe adequately compensate for the potential of higher treasury issuance. Turning now to the outlook, the macro backdrop is evolving quickly. The US economy has shown remarkable resilience, and we expect the Fed to take a wait-and-see approach as new administration policy changes could have a significant impact on the path of growth and inflation. We are preparing for a wider distribution of rates, especially in the back end of the yield curve, with the view that a steeper curve is the most sustainable, and likely outcome while respecting the possibility for shocks. Our framework is not to predict but to prepare and we are positioning the portfolio for pockets of volatility.

There will be surprises and our robust liquidity position should allow us to navigate those moments, capitalizing on our allocation to money good assets. In our view, agency RMBS have the best relative and absolute return potential versus other fixed income alternatives. Today’s return environment is still among the best I’ve seen and offers the possibility of earning double-digit ROEs. Nominal spreads on agency RMBS have been in the range of 135 to 140 basis points over seven-year treasuries and 175 to 185 over swaps. These spreads offer compelling returns as is and they’ve stabilized in a range. Several factors support spreads remaining at these levels or even tightening, a positively sloped yield curve has been associated with healthy demand for fixed income historically, and that will likely drive robust demand for agency RMBS.

Net issuance in 2025 will likely remain modest in the $200 billion, $250 billion area with mortgage rates in the 6% to 7% range. Bond fund flows have been positive at these higher yields, and could accelerate given the sizable holdings in money market funds. And finally, banks returned in 2024, buying specified pools across the coupon stack and structured agency MBS. With many of the banks hedging their duration in swaps, we expect the bank bid can drive spreads tighter over the year. Security selection will remain a focus. We have continued to diversify across coupons and specified pools that require less active hedging. Avoiding mortgages with the most uncertain durations remain critical, and will likely remain so for some time. Our coupon allocation reflects this view, and this is an important nuance that might get missed.

ETFs and other passive bond funds with current coupon TBA allocations may have optically higher yields, but those investments could underperform in environments like we saw this past October. On the financing front, repo markets stabilized late in the year, particularly after the Fed made modest tweaks to the rate on the reverse repo program, and made the standing repo facility slightly easier to use. Relatively small changes helped lower funding costs, especially around year-end. That traffic jam we wrote about in the Dynex angle on LinkedIn in the fourth quarter has largely been relieved. Mortgage repo rates relative to SOFR were around SOFR plus 45 basis points. More recently, we’re seeing spread to SOFR of less than 20 basis points. Liquidity remains plentiful, and I’m optimistic about mortgage repo costs in 2025.

Overall, we remain in a favorable investment environment. We expect that agency, residential, and multifamily MBS will remain the focus of our investments for many quarters to come. As the yield curve steepens, we will look for value in structured products like agency CMOs. Spreads are not yet attractive enough for us to allocate into agency CMBS, but we actively monitor relative value and would diversify as opportunities arise. This is an exciting time for me as a mortgage investor to take over leadership of such a strong team and infrastructure. Yield spreads in mortgages offer a substantial margin of safety for investors, and the upside potential from eventual spread tightening is significant. Before I turn it back to Smriti, I’d like to thank the executive team and our Board of Directors, and all our shareholders for your trust and partnership.

Smriti Popenoe: Thanks, T.J. The team at Dynex is at the forefront of policy discussions in Washington, providing the perspective from private capital on behalf of our shareholders, and working to ensure that the MBS market remains robust and effective. As the oldest publicly traded mortgage REIT, the company has seen many policy cycles. Byron and I have been preparing for shifting policy for over a decade now at Dynex. Proactive engagement, flexibility, and liquidity are important parts of our strategy to navigate through this policy environment. Looking ahead, we will continue to build the business to leverage our expertise to deliver compelling yields to our shareholders from the residential real estate mortgage market. Several factors are in place to advance our track record of delivering industry-leading returns.

We remain in an accretive investment environment in which raising and deploying capital drives long-term value by creating scale and dividends. We’re confident in the company’s ability to deliver on our dividends propelled by current and future returns. And as always, the Dynex management team and Board are co-invested alongside you, our shareholders. We appreciate your continued support. I’ll now open the call to questions.

Operator: [Operator Instructions] Your first question comes from the line of Bose George from KBW. Your line is open.

Q&A Session

Bose George: Hey everyone. Good morning. First, can you walk through the drivers of the shift from the — from treasury futures to these two swaps this quarter, and any impact that has on spreads and also just from an accounting perspective, you noted, I guess the GAAP EPS now is closer to the, I guess, the EAD. But does the prior deferred gains get added like you end up with a period where the EAD ends up higher than the — than sort of economic return?

Rob Colligan: You’ll start with the structure, and then I’ll get into the accounting.

T.J. Connelly: Sure. Hi, Bose, it’s T.J. As we discussed, I’ll talk about the market side and then turn it over to Rob. As we discussed last quarter, swap spreads reached levels where we think they more than compensate for the potential of more fiscal issuance. And as I mentioned in the prepared remarks, I think over time, moving as much as we did about two thirds of our hedges into swaps, we can add 200 basis points to 300 basis points of marginal ROE.

Rob Colligan: Yeah. And on the accounting front, as we’ve covered and disclosed, if you look at the materials and the earnings presentation, the futures gains are taken on a straight-line basis over the original hedge period. So if it was a 10 year [Technical Difficulty] taking that gain on a very linear basis over 10 years. Whereas the swaps, obviously you’re going to follow the payments on the swaps curve. So the time period over which those gains are obviously different than the futures, which have been taken over a straight line basis. We’ll continue to give those numbers to you each quarter as the portfolio changes.

Bose George: Okay, great. Thank you. And then actually can we just get an update on book value, quarter date, any big changes?

Smriti Popenoe: Yeah. Hi, we have that, Bose. It’s essentially flat since the end of the quarter.

Bose George: Okay, great. Thanks.

Operator: Your next question comes from the line of Doug Harter from UBS. Your line is open.

Doug Harter: Thanks. Can you talk about your strategy for continuing to grow the capital base in 2025, and how you think about issuing at a discount, given that you’ve achieved $1 billion size, and how that might change — that the pace of that might change if you started trading at a premium?

Smriti Popenoe: Yeah. Hi, Doug. Good morning. Thanks for the question. So, overall, I think our strategy has been predicated upon the investment environment, right? And we’ve said that when the investment environment allows us to Invest capital at ROEs that are greater than the level of the long-term level of the dividend, that we think that’s an accretive environment and that’s an environment in which it makes sense for us to grow the company. None of that has changed as we’ve coming into 2025, as T.J. mentioned, you’re seeing mortgage spreads still be in the 130s, 140s versus treasuries, 170s, 180s versus swaps. These are solid, healthy ROEs that believe — that we believe are long-term accretive. So that hasn’t changed. The second piece of this is understanding what is it — where do we want to get to in terms of size and how do we get there?

As Rob mentioned during the call, we have seen now significant benefits to scale 70 basis points, improvement in the G&A ratio. These are meaningful changes and accrue directly to the benefit of common shareholders. So that’s something that we believe is still a very powerful driver and reason to continue to grow the company. And I think you’ve heard Byron and I say together that we’re not interested in becoming the largest company in the space or any such thing. We believe that there’s some level at which the company starts to lose strategic maneuverability. And I can tell you we’re not there yet. So our intent is to continue to grow and we’re going to do it the same way that we have, which is in a disciplined manner, making sure that we’re investing the capital as we go along, and only raising it when and if it makes sense for us to make the investment.

Doug Harter: Great. I appreciate that, Smriti.

Smriti Popenoe: Thank you.

Doug Harter: In your prepared remarks, you talked about the potential for GSE reform or change in ownership. Can you talk about kind of how you think the MBS market is currently pricing that in and kind of how you think about the potential risks that could come from a change in the guarantee or change in the current structure?

Smriti Popenoe: Yes. Yeah, thanks. Thanks again. And when I look at where MBS spreads are now and just what — how they behaved even coming into year-end, and watching to see how they’ve changed as the new administration has taken shape here, to me — to us, it just seems like a very small percentage risk is being priced in of anything meaningfully different from where things stand today, right? So the MBS market has discounted, for the most part, the probability of change. And if there is any sort of risk premium that’s being built in, the probability assigned to it is small. One of the things that we look back at over time, if you look at the earnings chart, the earnings deck, there’s a page in there where we show you what happened to spread from well into the 90s.

And in the 90s, the GSEs operated as private entities. Byron, myself, T.J., all of us worked there. Spreads were a lot tighter than then they are now. And so it is possible for the GSEs to operate as private entities. The market did operate in that fashion then. Spreads were a lot tighter than. There wasn’t an explicit guarantee for agency MBS at the time. There was an implicit guarantee. So is it possible for things to sort of operate in that way? I believe that is possible. The pathway from here to there, though there is, is very difficult in our opinion. And it’s not clear that there’s a real benefit to homeowners of mortgage rates being substantially lower of having the GSEs operate in that private structure. So for that reason, and you got to weigh that against the idea of disrupting sort of a housing finance system that’s already working, and that cost benefit is not as clear.

So in our opinion, our operating assumption is, yes, could we get there? Yes, but the hurdle to get there is actually quite substantial.

Doug Harter: Great. Appreciate it.

Operator: Your next question comes from the line of Trevor Cranston from JMP Securities. Your line is open.

Trevor Cranston: Great, thanks. Good morning. Follow-up question on the shift in the hedge portfolio more into swaps and out of treasuries. I guess if we see swap spreads kind of stay around current levels, would you expect that shift to continue to move more into swaps or is there some kind of continued benefit to maintaining a portion of the hedges in treasuries at this point? Thanks.

Byron Boston: Yeah. Hi, Trevor. Good morning. I’d say the hedge portfolio is roughly where we want things to be given the current market environment at this point.

Trevor Cranston: Okay, got it. And then in terms of rate sensitivities, looking at the updated tables this quarter, looks like you guys are positioned more to sort of benefit more in a down rate scenario compared to where you were last quarter. Can you maybe just elaborate a little bit on your sort of near-term thoughts on the rate market? And I guess I’d also particularly be interested in your thoughts on how rate fall plays out over the course of the year? Thanks.

Rob Colligan: Sure. Let me just address the duration profile as of quarter end. You remember that that duration profile moves with rates, and we’ve adjusted our hedges a little since quarter end to add to our steepener and be a bit more balanced in the parallel profiles. So I can actually update you on those numbers. Up 100 would now — was at minus 8.2. It’s now minus 5.9 as of Thursday night, down 100 was minus 4.2. So you see a much more balanced profile. So in that sense, I want to be clear that we’re not taking duration views. We are seeking to extract the spread that’s available in mortgages. And of course, with the duration uncertainty of the mortgages, the model numbers that you see there do move around. As far as our rate view more broadly, I think that there’s — as we said, the front end will probably remain a bit more — a bit less volatile, the back end is certainly there’s a lot more uncertainty with the fiscal picture and the administration changes, what policy will look like, not just tax policy, but across the board, government policies and could impact the back end a lot more.

So you could see quite a bit more volatility on the back end. But I think the front-end rates will be a bit more pegged. Broadly speaking, for mortgages, I think we can see somewhere between 5.5 and 7.5 mortgage rates, and still be able to extract a lot of the yield spread that’s available.

Trevor Cranston: Thank you.

Smriti Popenoe: The shape of the yield curve is now offering us the ability to earn carry, right? And carry can cure a lot of ills and also can push in a lot of volatility.

Trevor Cranston: Yeah, makes sense. 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. Maybe actually following up on that last point you guys were just making, I mean if we see the yield curve steeping further from here, I mean, do you envision taking maybe more risk in the portfolio, and do you think you’d accomplish that more with like a longer duration gap or is there room to raise leverage and how much liquidity do you see maybe keeping under each of those kind of scenarios?

Smriti Popenoe: Hi, Eric. I think what’s interesting is where — when we look at what returns are being offered to us when we buy mortgages relative to swaps or even relative to Treasuries here, these are good long-term double-digit returns. And so, taking risk up, we would have to — we would really have to see meaningful trade off in taking that risk up relative to the return we might get from taking the risk up. So at this point, spreads are still wide. There’s still a really good opportunity to earn just that incremental 175, 180 versus swaps. And so that is a good return environment as far as we’re concerned. So to take risk up, the return from taking duration risk, the return from taking incremental spread risk really has to be accretive in the long-term.

Those would be the impetuses for us to take risk up. I’ll let T.J. just tell you — talk to you just about the overall view on spreads here. But I think at this point, taking those types of risks would really — we’d have to feel really confident that we’re getting paid to do that.

T.J. Connelly: Yeah, look, spread volatility has come down, trading in the 130 to 150 area for the better part of the last several quarters now. I think there’s still scope for spreads to move slowly tighter probably as implied volatility starts to move lower in rates. And once we get deeper into this year and have a better idea of the fiscal situation, I think that’s quite conceivable.

Eric Hagen: Yeah. I mean, for my second question here, I mean, I guess we’ll just kind of follow up on all this stuff. Maybe I’ll ask about the prepayment environment. I mean if the outlook is for rates to remain relatively high, I mean, I think you guys mentioned the opportunity for rate shocks and pockets of volatility. I mean, how do you still price in the risk to spreads as it relates to short-term rallies in rates? The aggressive targeting that we might see from originators against that backdrop.

T.J. Connelly: Yeah, that’s really critical. And we saw what I’ll call kind of a mini refi wave in September really came through in the October prepayment reports. And though there are certain segments of this market that are just very, very re-financeable and that’s what I was getting at in my prepared remarks about specified pools being very important, avoiding some of those borrowers who are going to refinance very, very quickly. There are segments in this market [Technical Difficulty] extremely negatively convex, and it’s been a lot about security selection, and coupon selection being a little bit lower coupons. I think we saw 6.5 and 6s pay — pre-pay at very fast levels in that last wave. So we’re going to get those kinds of events and that’s how we’re preparing our portfolio for those.

Eric Hagen: Yeah. Thanks, guys. I appreciate you.

Smriti Popenoe: Thanks, Eric.

Operator: [Operator Instructions] Your next question comes from the line of Jason Stewart from Janney. Your line is open.

Jason Stewart: Hey, thanks. Good morning, and congrats, T.J., well deserved there. I appreciate the comments on GSE reform and maybe you could just touch on one topic we haven’t talked about so far and that’s with the new FHFA director, where you see the origination footprint of the GSEs moving and whether that has supply implications for the agency mortgage market?

Smriti Popenoe: Yeah. Hi. Hi, Jason. I think it’s hard to tell at this point. There’s ideological biases that we know are going to be there. If you just follow those ideological biases through, you would expect to see a smaller footprint, right, and higher sort of scope for private label issuance to increase. That would be logical. If there’s anything that we’ve learned over the past eight years, it’s really sort of like the actions, and the actual policies that get implemented that matter. It’s difficult to say just because someone is nominated that the policy is going to be A, B, or C. We’re waiting to see what the actual actions are.

T.J. Connelly: Thank you, Jason, by the way. And I tend to agree the smaller footprint is ideologically a very likely path. In terms of market implications in the GSEs, really want to frame how we’re thinking about it and there’s going to be three waves of impact for any potential policy shifts, whether it’s GSEs or otherwise. First, the market’s going to react to the anticipated policy changes, right? You’re going to get that kind of headline reaction. Then second, you’re going to have the perception and reflective period, where policymakers are actually going to respond to the initial market reaction. So there’s going to be this back-and-forth reaction between markets and the messages from policymakers. And then finally third, we’re going to have the ultimate policy change implementation. So this is going to be a long process and I think there’s going to be a real back and forth between markets and policymakers.

Jason Stewart: Yeah. Okay, that’s good color. I tend to agree with you too. And then, Smirti, one follow-up on Bose’s question on book. Was that book value number flat quarter to date as of Thursday or is that sort of including today’s rate move?

Smriti Popenoe: It would be as of the close of Friday and it is net of the dividend.

Jason Stewart: Got it. Okay. Thanks very much.

Operator: And that concludes our question-and-answer session. I will now turn the call back over to Byron Boston for closing remarks.

Byron Boston: Happy New Year. Thank you very, very much for joining us today and we look forward to updating you again next quarter. Thank you.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.