Mark Tecotzky: That’s a great question. So right now, spreads are so wide and you make a lot of money on your shorts like all the SOFR swaps, you’re paying a rate that is significantly lower than the rate you receive, right? So as opposed to 2020, 2021, wherever hedge you had, cost you money, right? You’re paying a lot more than what you’re receiving. This is the exact opposite, right? So spreads are wide enough now that if you just see stability, you’ve got — you can put together a very strong quarter. In terms of widening or tightening, what would I rather see I think when you get tightening, what you get is sort of short-term book value gains that come a little bit at the expense of longer-term ADE. But I guess, probably my preference is a little bit towards tighter spreads because I think that would come with the market where it would probably imply to me that you’ve seen some reduced volatility.
You have the market expectation that the Fed is going to sort of not do very much for the next few meetings, probably came to fruition. And you’ve seen enough demand for mortgages to offset just new origination supply or sort of demand kind of exceed that to drive them tighter. So I think I’d like to see that because you went through 2022, which was a really challenging year. And this year, it’s sort of been ups and downs, but there’s been a lot of volatility. So, I think the sector as a whole benefits from stability. And I think that would be a nice thing to deliver to investors to sort of like not only ADE, but also some book value gains.
Larry Penn: I would just add. So yes, I think less interest rate volatility certainly would be better given how we’re positioned. But I think spread fluctuation is a positive for us, because we do have dry powder from a — in terms of our net mortgage exposure and our leverage and as we said in the prepared remarks, we took advantage of that in the second quarter, covering a lot of our TBA shorts when spreads were wider and then we’re putting them back on. So I think a fluctuating spread market is actually a good market for us, in particular, since we do dial up and down our exposure with aggressively sometimes.
Crispin Love: That’s all helpful color. And then in the prepared remarks, I wanted to make sure I caught this right, but you made some comments that made it seem like banks could come back and be buyers of Agency MBS, I think, a little earlier than some expected. So can you just flush that out a little bit? And is this demand that you might expect later in the year or early 2024? Just curious what you think there. And if I heard you right.
Mark Tecotzky: Yes. So I think if you go back prior to 2022, you had two giant pools of capital that were really sort of the cornerstones for anchoring mortgage spreads with the Fed obviously and banks, right? You had so much COVID-related stimulus. You had this explosion deposit growth on the banks. And a bit like mortgages, they bought a lot of mortgages. It was a time where they’re paying almost nothing on their deposit costs. So they grew the mortgage portfolios a lot. But even before that, even if you go back to, like, say, the ’90s or the ’80s, right, banks have been big, big buyers of the mortgage market, and they own a lot of it, right? Then you go through 2022, you have — they all have tremendous losses on their portfolio.
