Two Harbors Investment Corp. (NYSE:TWO) Q3 2023 Earnings Call Transcript

So, if there’s our average – if there are opportunities to acquire more MSR, we can certainly participate in that to some degree. We obviously can’t double the amount of MSR portfolio that we have currently. But we can grow it a little bit, but we’re happy with our capital allocation and the relative mix, given the opportunities in the market right now.

Eric Hagen: Okay. A follow-up on the hedging, I mean, is there a way to hedge the float income component of the MSR? Is that not really a cash flow that’s really worth hedging with repo also being present in the portfolio? Just how to think about that? Thank you guys.

William Greenberg : Yeah, thanks for the question. Not only is there a way to hedge the float components, but we do hedge the float components, right? That is to say that that when rates rose, we did not achieve a windfall from rates rising, and the increased earnings benefit that we have, because we hedged it. And should rates fall from here, we will not realize a degradation in our book value due to that because we will be hedging that, as well. So, when we talk about hedging our portfolio as we’ve discussed many times and actually I think one of our conversations series that we just posted is about partial durations and hedging along the yield curve, right? And so the floating rate components have their own exposure along the yield curve that’s different than the pure interesting rate strip, but we put it all together when we manage the portfolio and we hedge the individual interest rate buckets, interest rate maturity buckets separately, so that we’re able to hedge the floating components, as well.

Eric Hagen: Okay. Thanks for the information. Appreciate you guys. Thanks.

Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to Bill Greenberg for any closing comments.

William Greenberg : Well, I just want to thank everyone again for joining us today. And thanks as always for your interest in Two Harbors.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.