And the other thing I would say is that it’s not real expensive to buy prepayment protection. So, it’s not as though prepayments don’t exist and mortgage bankers aren’t going to be aggressive about trying to solicit refis when they can, they certainly will be. It’s just the vast majority of the market and the vast majority of what we own, you still have a lot of — it would take still a significant move in rates to get it re-financeable. And so — but still rates are unpredictable, implied volatility is high. So, even the forward curve predict rates are coming down, there’s a lot of dispersion around it. So, still for most coupons, in some of the higher coupons, we’re still choosing to buy pools with prepayment protection. We think it’s relatively affordable.
And one thing that was a big part of last year was looking for pools. I think we mentioned it a few calls ago, looking for specified pools that have faster than market projected prepayment speeds, and that certainly helped us to get into things like 2.5s and 3s and 3.5s, we have big discounts, even finding pools, you are 1 or 2 CPR faster makes a huge difference in yield. So, prepayment modeling, prepayment speeds, prepayment risk, it’s still out there. It’s just right now given the current distribution of coupons in the market, the real scary prepayments are only affecting a very small subset about what’s out there, and it’s a sector that we have avoided, but we — I’m not surprised to see some of these very fast prepayment speeds because there’s still a lot of capacity within the mortgage banking community and the technology has gotten better.
And so we look for them to be aggressive whenever they have opportunities to be aggressive on refis.
Unidentified Analyst: Got you. Thank you, Mark. And as always, best of luck guys going forward. Thanks,
Mark Tecotzky: Thank you.
Operator: And our next question will come from Matthew Erdner with JonesTrading. Please go ahead.
Matthew Erdner: Hey guys. Thanks for taking the question. Kind of following up on that CPR, you guys took off some of the lower coupons during the quarter. Could you kind of talk to the thoughts there?
Mark Tecotzky: Yes, we just saw opportunities during the quarter to rotate up in coupon. I think portfolio went up about 10 basis points or so in coupon. The relative performance of lower coupons versus current coupons is really impacted by flows into the big bond NC. So, if you look at mortgage index, if you look at the distribution of mortgage coupons and something like the Barclays Agg, it’s heavily weighted to 2s and 2.5s. And so the relative performance of those coupons is very much impacted by flows into the Agg. And there’s a couple of real big $100 billion-plus ETFs that track the Agg. So, we saw opportunities where a lot of flows came into Agg-type portfolios where lower coupons outperformed. We saw an opportunity to go up in coupon, we thought it would add — it certainly adds ADE. We thought it would also add total return. So, we’ll continue to be opportunistic about that.
Matthew Erdner: That’s helpful there. And then allocating capital to CLOs, continuing that strategy. Are there any other places where you feel like you guys could opportunistically deploy additional capital for total return?
Larry Penn: That’s where we’re focusing on now, no.
Matthew Erdner: Okay. Thank you.
Operator: And our next question will come from Eric Hagen with BTIG. Please go ahead.
Eric Hagen: Hey thanks. Good morning. Hope everyone is well. One more on just kind of the market dynamics. I mean what do you feel like would support more dollar roll specialness in the market? Do you feel like it’s reasonable to expect that, that could come back if there’s any changes to Fed policy?
Mark Tecotzky: I would say that for some of these higher coupons, I think the dollar rolls have predictably gotten weaker because you’ve sort of built up now an array of kind of faster-paying pools. If you look at things like Fannie 6, now that they’ve been production for a few months, you have some pools that have come up the seasoning ramp. So, I don’t look for specialness to be there. In the lower coupons, you can get specialness if you get a lot of flows, look I was talking before about into these Agg indices because when money comes into an Agg index and whoever is managing it and wants to buy a bunch of Fannie 2s and 2.5s to get there to minimize tracking error, you really need to get that from other investors, right? They initially will buy from the primary dealers, but the primary dealers are then going to want to buy that from other portfolios.
And a lot of those bonds are locked up in the Fed and locked up in banks. There’s obviously news on Truist a week or so ago. And when that news came out, it caused lower coupons to underperform. So, I think in the lower coupon stuff, you can see some more volatility in the roles. But still there, we tend to find — if you’re thoughtful about fast-paying pools, you can find pools that pick up carry versus the roll. So, I don’t see a lot of specialness going forward for the higher-end production coupons where you’re starting to see a float that’s faster. And I think for the lower coupon stuff, you can see it, but it’s kind of month-to-month, like there was a month ago, I think the Ginnie 2, 3 roll was special. So, you get sort of these one-off things, but where most of the production is centered I don’t think you’re going to have a lot of specialness, which is really a big difference from the 2021 period where production was Fannie 2s and 2.5s and they’re routinely special, and everyone spoke about that, and they were special because the Fed and banks are buying so much and they weren’t rollers.
