Robert Cauley: I think you can think about it a little bit, too, but if you look at our hedge positions, all of those, we have a book of $1 billion worth of T-Note futures shorts on. And that’s been a consistent part of our portfolio mix forever. But the thing about those instruments is they don’t play out quite like a swap does. I mean, we have swaps that we put on sort of at those cycle lows as well that are around 100 basis points pay-fix and we’re receiving so far well into the fives now. So if you think about the dynamics that took place that made those swaps go into money by so much where we’re realizing that positive income value as the life of the swap plays out, we’ve had those same types of gains in those T-Note futures as well.
But the nature of the beast is that you don’t have an income component to those where you’re paying a fixed rate and receiving float. So, you’re just rolling them and every time you roll them, you have a capital gain that you tuck away that you’re going to use to offset your interest expense for tax purposes over the life of the underlying instrument, which is a five-year note or a 10-year or something like that. So, for tax, it’s a little easier to get your head around where, you know, how those different types of hedge instruments, mimic one another for offsetting interest expense for federal income tax purposes.
Christopher Nolan: So, given all of that, where do we stand with the dividend? Should we view, the dividend sustainability to be somewhat detached from core EPS or GAAP EPS?
Robert Cauley: Yes, I mean, we haven’t said anything. I don’t want you to read any too much, but yes, I mean, we know that that can never change. Our dividend has certainly changed in the past, but given, where we are at the moment in terms of that, our positioning in the portfolio, as we mentioned, we’re kind of comfortable with this lower coupon bias. We may add at the margin some higher coupon securities to close that gap some time, see an opportunity to do so, but we think that the modest shortcoming in that regard is offset by the much greater price appreciation potential of those assets versus the higher coupon securities, which offer greater current income, but in our minds, much lower long-term total return opportunities.
So if you look over the next year, total return, the lower coupon securities may give you a little less income, but we think they offer much higher price, potential price return, and therefore, higher total rate of return over that horizon. I think we think about it also, bounces around as sentiment for what the Fed’s going to do next, bounces around. I mean, it wasn’t all that many weeks ago when we had cuts baked into this year, and the third and the fourth quarter, maybe not the third quarter, but definitely the fourth quarter, and so and now the market’s kind of taking the view that we’re going to have more of a soft landing, I think and maybe rates can stay higher for longer. So, the point of all of that is just in terms of the dividend, we definitely don’t want to put our shareholders through any unnecessary pain.
