Ellington Financial Inc. (NYSE:EFC) Q3 2023 Earnings Call Transcript

Matthew Howlett: We look forward — but the timing was terrific. Look forward you to closing the transaction and look forward to continued success. Thank you.

Operator: And we have our next question from George Bose with KBW.

Unidentified Analyst: This is actually Frankie filling in for Bose. Just one question. On Slide 14, you provide interest rate sensitivity. Can you talk about how sensitive your agency MBS position is to the changes in spreads? And then just a follow up, how much do you hedge the agency spreads? Thanks.

Larry Penn: It’s sensitive to spreads or to rates?

Unidentified Analyst: The spreads.

Larry Penn: You can’t see that on this Slide. But if you look to the that shows the — yes, exactly. Yes, I think 22 is the place to go. Slide 22.

Unidentified Analyst: Okay, thank you…

Larry Penn: Yes, if you turn to that, I will elaborate. So you can see that when you net out our TBA shorts, which really had spreads dollar-for-dollar on the equivalent amount of longs, right? You can see that our net agency we call net agency pool assets to equity ratio was 5.4:1. So then you can go and basically say, okay, what does that mean? Well, actually, if you look on the slide, you can see there are net long exposure to agency pools of $698 million. And so if you think about 10 basis points in spreads on the portfolio. Mark, would you say that’s 10 basis points is what, is it 0.5-ish? What do you think?

Mark Tecotzky: Yes, that’s exactly what I was going to say. Yes, five year spreads…

Larry Penn: So you are talking about spreads move by 10 basis points then half a percent of $690 million is about $3.5 million. So 10 basis points is — it’s a significant move in spreads. We could see 20, it’s possible to maybe, but we are already near all-time wide. So it is not — I think in the context of our entire portfolio, it’s not a huge exposure. But it is one that we like right now given that as we said, I mean, spreads are pretty close certainly on a notional basis, but even by other metrics. But certainly on a notional [Technical Difficulty] back close to where they were right after COVID hit. So it’s measure wide.

Mark Tecotzky: And another kind of rule of thumb or shortcut you could take is the prior Slide 21, you could see that 35% of our interest rate hedging portfolio is in TBA at September 30th, up a little bit from 32% at 6/30. But you can roughly say that, that 35% is also addressing the spread widening risk whereas the swaps don’t. So as that fluctuates you can see how much of the mortgage basis were hedging through TBAs versus not through swaps.

Operator: And that was our final question for today. We thank you for participating in the Ellington Financial’s third quarter 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.