AGNC Investment Corp. (AGNC) Earnings Call Transcript & Summary

Great. Good morning, everyone. I'm Doug Harter. I cover mortgage finance, including the mortgage REITs, at Crédit Suisse and happy to welcome Peter Federico from AGNC back to the conference.

Just as we start, Peter, just given the volatility we've seen in the market, just -- can you just talk about where Agency MBS spreads are today, kind of how they've been performing this year and what the sort of the key drivers of that have been?

Sure. Well, first, Doug, and to Crédit Suisse, thank you for having us. Appreciate the opportunity. But as we talked about on our earnings call, which we held right at the beginning of February, we had already seen some pretty significant spread widening in Agency MBS in the month of January, and that sort of pressure on spreads has continued now into February. If you just look at mortgage performance sort of across the coupon stack, just broadly speaking, I would say that the lower coupons, like the 2% and 2.5% coupons, have been the better performers so far year-to-date, but those spreads are out probably on average something in the neighborhood of 10 to 15 basis points. The more production coupons, like the 3% and 3.5% coupons, those spreads are out even wider, somewhere in the neighborhood of 20 to 30 basis points. So that sort of gives you a ballpark of the sort of pressure that Agency MBS are under from a spread perspective. That ultimately can be challenging from a book value perspective. It ultimately means that the return opportunities are also improving for the future, and I'm sure we'll talk about more of that later.

I think let's just to put that in context. Like so where are spreads today versus the long-term averages versus where we got to post taper tantrum? Just to kind of give us some context around that.

Sure. Well, first, if you look at where they are sort of over a relatively long period of time, I would say that spreads, given the widening that we've observed over the last 13, 14 months, are probably more in line with historical averages, maybe a little bit above. There are certainly periods historically where they've been wider. There's certainly a lot where they've been tighter. So returns or spreads have widened pretty significantly. You look at where they were, in particular, back to May of last year, for example. That was the sort of near-term type of mortgages. From that point, they're probably in the neighborhood of 50 to 60 basis points wider. So we've seen some pretty significant move from the tight levels that we saw in May of last year.

Got it. And can you just walk through what were the key drivers of that widening? Why -- kind of why 50 to 60 basis points from there?

Well, what we're facing now in the -- really in the fixed income market, complex generally, but within Agency MBS, we're facing sort of 2 regime shifts, which are always problematic from a fixed income perspective because we have the Fed transitioning from quantitative easing and essentially 0 short-term rates to higher short-term rates and quantitative tightening. So we have to all adjust to uncertainty as to the direction and the speed with which they're going to change short-term rates. We know they're going to do that. We don't know how fast that repricing will be. At the same time, we're also facing uncertainty with respect to how the Fed is going to manage its balance sheet. And we know that the Fed historically has been very patient. If you look back to, for example, QE3, they held their balance basically unchanged for close to 3 years while they were raising short-term rates, and they didn't really start reducing their balance until after the head raised rates 4 times. What they've indicated now is that they're going to do that at a much faster pace sooner than the market had anticipated. And so we have the uncertainty of that right now, and we don't know exactly how they're going to do it. And that's a challenge because the market, particularly Agency MBS, are faced with the uncertainty as to how quick the Fed is going to reduce its balance. We'll get clarity over that over the next sort of 3 to 6 months, probably even sooner. But that's the issue that the market faces. In the face of uncertainty, you would expect a repricing, and Agency MBS tends to lead the widening in environments like this. If you look back historically, I think you would find that to be the case. And certainly, we have found that Agency MBS spread widening has certainly led some of the credit spreads. They remain relatively tight certainly closer to their historical average, whereas Agency MBS now are looking more in line with historical averages.

Just on that point, what are the factors that generally lead Agency MBS to kind of leading that widening?

Well, first, it's the primary asset class that the Fed uses, Treasuries and Agency MBS. So we know that the Fed is essentially going to be a supplier of Agency as it reduces Agency MBS, as it reduces its balance sheet. So it's unique in that way, but also the liquidity of the product lends itself to be the product that allows investors to sell a spread product relatively easy. It's the most liquid spread product you could have. It allows investors to reposition very, very quickly, and it tends to lead, I think, for that reason.

Got it. So I guess putting that -- you said get clarity over the next 3 to 6 months, but I guess how do you view the direction of Agency spreads in that period while we're still waiting for that clarity from the Fed?

Well, as we talked about on our earnings call, our expectation was that we expected spreads potentially to widen somewhere in the neighborhood of 5 to 15 more basis points. We've obviously observed some widening already in the month of February. And I think Agency MBS spreads will remain under pressure until we really get clarity as to exactly what the Fed will do with respect to its balance sheet, and I expect that clarity at the next 2 meetings. So I expect the Fed to explain in really relatively significant detail exactly how it will run off its balance sheet, what the caps will be. I expect them to start to reduce their balance sheet in the second quarter. And once the market gets an understanding of that, then I think we can have some stability in spreads. Until that point, there's too much uncertainty as to what they might adopt in terms of the speed or the amount of the cap that they'll adopt.

Got it. I mean I guess how do you think about what your base case is or what the market is thinking about base case for how the Fed is going to reduce? And I guess is the tail risk that they reduce faster, and that's kind of the uncertainty you're talking about?

There's certainly that, I would say, sort of the book ends of market expectations. When they reduced their balance sheet last time after QE3, they used a $20 billion cap for Agency MBS and a $30 billion cap for Treasuries. Their position, obviously, is close to double that. I think market expectations now are that the Agency MBS cap will be at the lowest $25 billion and potentially $40 billion. But if you think about it from a CPR perspective, I think the number that makes sort of sense in the context of the Fed's objective, which -- we only know that the Chairman has said that he wants the runoff to be predictable, orderly and running the background. That seems to not indicate too large of a cap that would put pressure on the market and potentially destabilize at [ around ] a 15% CPR for the Fed portfolio. That would be equivalent to about $35 billion. A 12.5% CPR at 30 -- would be $30 billion, and that would be probably a reasonable CPR over the longer run. So that seems to be sort of a consistent level from that perspective. And if the Fed owns 2x that amount in Treasuries, a $30 billion Agency MBS cap and a $60 billion Treasury cap seems to be a reasonable place for them to maybe come out and still have the orderly market conditions that they desire. I think they can ramp that cap up in a couple of months from announcement. So for example, after the May meeting, if they announce a June start, maybe by the end of the third quarter, they would be at their full cap. And I think the market could absorb that and handle that well. It's that sort of predictability that the market needs. The one thing that the Fed hasn't taken off the table yet is asset sales. And while I think that probability is remote, and I think the minutes yesterday sort of indicated that it's not off the table, but it's not something that they are focusing on over the short run. I think more discussion of that will also be beneficial to the market.

Got it. And I guess how do you put in kind of the thoughts around the caps, the Fed commentary that they'd prefer to have more of a Treasury portfolio versus an MBS portfolio? Does that, I guess, increase the risk that the cap could be larger on the MBS side and smaller on the Treasury side?

Yes. I think it certainly raises that risk. But I think the reality is that what they will do is something similar to what they did after QE3, which is that they'll just allow the Agency MBS portfolio to run off almost on a sort of continuous basis. So we know that the Fed's $9 trillion balance today has to be something materially lower, right? We think it's probably in the $6 trillion range would be the right amount of reserves in the system, and that's sort of -- in their own words, the Fed has indicated sort of the right size. So I expect them to run both Treasuries and Agencies off at a predefined pace. And then at some point in the future when they hit that so-called right size, I would expect them to continue to allow Agency MBS to run off and replace that with Treasuries sort of maintaining. And I think they could do that over 3, 4, 5 years, and I think that would achieve their stated objective, which they put in their principles. And I think they can also maintain market stability in orderly markets that way.

Got it. I mean I guess how do you think about the impact to the market as the stock effect of the Fed holding kind of decreases over time or that float kind of comes back in? And I guess what parts of the market are most impacted by that?

Yes. Well, what's interesting is the Fed owns 30-plus percent of the market. And if you look at what the Fed own and what the banks own, they own about 70% of the market today, which is an incredible number, which means that the tradable supply of mortgages is not that high. And that's actually a very positive long-term fundamental technical for the market. Now the Fed obviously is going to reduce its holdings over time and those securities are going to have to find their way into the private sector. But I think the private sector is pretty well set up for this as well. That's one of the things that differentiates today's environment from ones in the past is that it's pretty well telegraphed. So if you look at money manager positions, they're significantly underway. That could be hundreds of billions of dollars of demand. We know that banks have taken up huge amounts of securities. I can't say that they're going to continue at that same pace, but we know they're going to continue the demand. If you look at REITs, for example, REITs are underlevered right now relative to historical leverage. They have capacity to take it up. So we're in a period where mortgages are repricing to really relatively attractive levels. And I think, ultimately, over time, if that -- if the reduction of the Fed's balance sheet occurs gradually and predictably, I think the market will be able to absorb it.

Got it. You just mentioned REITs being kind of underlevered versus history. I think that same comment would apply to AGNC specifically. Just given what we've just been talking about with the market, how do you see or what do you see as kind of the points that would give you more confidence to sort of start taking that leverage back towards historical levels?

Well, ideally, we want stability really on 2 fronts. We want greater interest rate stability because that obviously changes the environment for hedging security. So ideally, you want more stable interest rate environment than potentially what we have right now. And you also need the stability with respect to what the Fed's actions are. In the face of uncertainty, we could continue to see significant spread volatility. We expect spreads to drift wider, but they also could be and remain materially volatile. So we want stability in that as well. And we'll get that, but I think it's going to take, like I said, 3 to 6 months for the market to sort of reprice to this new regime. And once we get to that point, we operate in, as we said in our last call, at around 7.5x leverage. That's a couple of turns lower than where we typically operate. So we have significant capacity to take advantage of attractive opportunities when they arise. But I think we need greater stability, greater clarity from the Fed.

I guess the other way, right, if you think that we're going to stay in a volatile environment, why is 7.5x the right number versus, say, 6.5x?

Yes. We have operated at lower leverage in the past for relatively short periods of time. But what I would say, when you're adjusting your leverage position, we are in a position today where we're operating at significantly lower leverage than we have in the past and still generating very strong financial results. And that's really important. We obviously want to continue to generate attractive returns for our shareholders. When you make leveraged adjustments, you tend to have to have sort of really short-term horizons because you can't assume -- and even in today's environment, we can't assume that mortgages are going to widen that much more. We think they will drift wider, but there's lots of 2-way risk in the market still. We're seeing that on the interest rate side and with the geopolitical risk. So we think that our 7.5x leverage where we've been operating is sort of the right level. It gives us a lot of flexibility but still allows us to generate attractive returns for our shareholders.

Got it. I guess just shifting to where do you see kind of returns today on Agency given the spread widening, you've talked about kind of January, February, how much -- kind of how much has that changed?

Yes. Well, if you go back to our second quarter 2021 earnings call, we were talking about generically Agency MBS returns in the 8% or 9% ROE level. Today, and I mentioned this on our earnings call, given the widening that we see, returns are 3% or 4% or 5% higher than that sort of just generically. So 10% to 12% to 13% ROEs are attainable now in certain coupons. It also is very important in the current environment exactly how mortgages are hedged. Given the shape of the curve and given the differences in various coupons, whether you hedge with more longer-term hedges or shorter-term hedges, can give you a very different outcome. But generally speaking, we're in the low double-digit range for ROEs, which is attractive on a -- if you look back historical period. And that doesn't take into account some of the favorable funding that still exists in the TBA market where you can really pick up significant additional incremental spread by, instead of owning a position on-balance sheet and repo funding and owning an off-balance sheet in TBA and rolling it. We're able to pick up as we have in the last 3 or 4 quarters 40, 50, 60 basis points of additional benefit. We expect that to sort of gradually decline, but that -- those incremental spreads are still available on TBA.

And just sticking with the TBA. Kind of -- one of, I guess, the benefits of the Fed had been soaking up a lot of the kind of the worst to deliver type collateral. As that starts to change, I guess, how do you think about the risk of owning that type of collateral versus the yield pickup and the pros and cons of that?

Well, you're exactly right. When you make the TBA decision, historically, you tend to pick up additional return relative to on-balance sheet funded. There's usually a positive spread. 10, 20 basis points historically gives you some incremental return opportunity. But that incremental return opportunity comes in certain environments at a significant cost, meaning you could get delivered very convex -- very negatively convex assets. So you always have to analyze that. You always have to make that trade-off. In the current environment, you're right, the Fed is absorbing those most negatively convex mortgages. So the delivery option is not worth that much. Going forward, we'll have to make that trade-off on a real-time basis and then have to hedge those securities differently because of that. And that could lead to incremental hedging costs, and you have to build that into your return calculation.

Got it. And then before, you just mentioned kind of the return outlook depending on kind of the shape of the yield curve and kind of where you're hedging along the curve. Can you just talk about that? How does -- if the curve flattens like a lot of people expect, kind of how does that impact your returns? And kind of how do you look to position yourself for that?

Sure. AGNC tends to operate with a relatively small duration gap, just generally speaking. It's usually in the neighborhood of 0 to 1-year duration gap. So in a steep yield curve environment, operating with a positive duration gap can give you some incremental return. Obviously, in a flat yield curve environment, you're not going to be able to pick up any additional return. But really, the question is where are Agency MBS spreads to the yield curve regardless of whether it's flat or not. And what we're seeing now is the widening in Agency MBS spreads is significant, and it is improving returns despite the flatness of the yield curve. So I expect that to continue, and I expect there to be attractive opportunities even with the yield curve flattening and would also obviously then change the way we hedge our securities in a flat yield curve environment, which could be very beneficial.

Got it. When AGNC always talks about its duration gap, it always shows the sensitivities plus or minus 100 basis points. Kind of as you look at the market today and given the moves we've had, how do you think about the extension risk to the portfolio? How do you think about what prepay risk could come back into the market? And how does that gets you to where you think the right duration gap to be running today is?

Yes. It's a very good question. Our bias is that interest rates still are headed higher, but that doesn't mean that we shouldn't operate with some positive duration gap. What we -- where we are in the mortgage market right now is that we are above the peak convexity point in the mortgage market, meaning that as we go forward, there'll be less extension in our portfolio given the rate move that's already occurred. So as we incrementally move up to higher and higher interest rates, our mortgage durations will start to stabilize. There's still some extension left. Lower coupons obviously have extended a lot, but there'll be some further extension as our sensitivity shows. But right now, given where we are in sort of the rate spectrum, lower rates, obviously, because the convexity point is below us, there'll actually be more contraction in our portfolio. So the sensitivity is starting to shift towards lower rates is one of the reasons why we tend to operate with a positive duration gap to give us still protection for lower rate environments and give us the protection that mortgages tend to widen into a [indiscernible] environment when prepayments pick up. So that's something that we're going to have to build into our hedging equation in this environment.

Got it. And then earlier, you mentioned that there's been a decent disparity in kind of the spread widening amongst coupons. How do you think about the relative attractiveness of -- across the coupon stack? Some of those coupons now trading at discounts. How do you think about the attractiveness of that versus the higher coupons?

Yes. It's a supply and demand dynamic going on. The production coupon is the one that's been under the most pressure. The production coupon is the one that the Fed has concentrated its purchases on, so as the Fed steps away from the market, it's those coupons that have felt the brunt of the spread widening. It's why the production coupon has widened so much. It's also an area where the dollar roll funding is most significant. So that's beneficial. So we have to look at those instruments from a funding perspective, from a hedging perspective and look at the returns. With respect to higher coupons, one of the things that has hurt those coupons so much over the last year is the very high prepayment environment. Looks like we finally have turned the corner. We're starting to see some burnout reveal itself on those coupons. Certainly with the primary mortgage rate now close to 4%, we're seeing significant slowing in prepayments. So those higher coupons actually should look better from a carrier, from a realized yield perspective than they have in the past. And that's an important consideration.

Got it. I mean I guess how do you think about what the turnover rate is going to be kind of as we go forward, right? I mean the purchase market remains strong, but affordability between HPA and higher rates are probably getting a little more stretched. So I guess how do you -- what's kind of the outlook on that?

Yes. Well, that's a great question. And this goes back to the question earlier about why the Agency MBS market is under pressure. Because it's under pressure because of Fed uncertainty, and it's also under pressure because of supply uncertainty, right? Generally speaking, we expect the supply of mortgages to be somewhere between $400 billion and $600 billion this year. And to put that into context, last year, it was $300 billion, and the market absorbed that pretty well. And the year before that, it was negative $100 billion in 2020. So we are going to potentially see a supply of mortgages that is on the higher end of the spectrum. But as you point out, there are things that could curtail that supply. The primary mortgage rate being up about 120 basis points from the low of last year is going to be significant. House price levels is going to slow the demand for mortgages. [ The affordability ] is significant. On the flip side of that, we're also seeing refi activity being higher, with cash out refi activity being higher. And so that's sort of countering that. We're going to have to see this play out over the course of the year. Right now, the seasonals are favorable. But over the next quarter or 2, I expect more clarity on the supply of mortgages, and that's going to be a significant driver of spreads.

Got it. I guess to this point of our conversation, we spent most of the time, I think, talking about the Fed kind of about their balance sheet. Obviously, the other focus will be kind of the short-term rates. I guess, one, kind of how are you thinking about what market pricing is for short-term rates? And more importantly, how do you think AGNC's portfolio is positioned for that?

Well, I think the Fed is going to essentially take what the market gives it. And I think they've been clear that they want to increase rates, and they want to do so as stably as possible without disrupting the market. And so if the market, for example, is fully priced in, in a 50 basis point move in March, I think the Fed will take that 50 basis point move. And that's my base case expectation. And then I think they'll essentially start moving at 25 basis point increments thereafter until they get to a significantly higher rate. What's important for us at AGNC is not so much the timing of these rate moves. It's how well are we hedged for these short-term rate moves. And that really comes back to the hedge ratio that we're operating at, which is over 100%. And in particular, if you looked at, for example, our swap portfolio to our repo position, at the end of the year, our swap position was $51 billion and our repo position was $47 billion. So we had more hedges than our repo position, which means we've essentially converted our short-term funding to longer-term debt. So there'll be some timing mismatches between the way the repo rolls and the prices in the repo market versus the way our swaps reset and the receive leg on our swap. But essentially, we have termed out or locked in our short-term funding by maintaining a hedge ratio of swaps equal to our repo position.

Got it. And obviously, one of the other things we've been talking about is kind of the increase in volatility. Kind of how does that increased volatility change the way that you think about constructing your hedge portfolio?

Yes. That's a great question, and you've seen us do this in the past. When interest rates, for example, were very low at the end of 2020, and interest rate volatility was very low, that is an ideal time to buy out-of-the-money option protection for your portfolio because you can get -- you can buy that protection at low implied interest rate volatility levels and at really attractive strike prices, and we did that. And so it gives us an opportunity to buy that sort of out-of-the-money protection. In today's environment, with the level of longer-term rates now close to 2% and interest rate volatility high, it makes those options, those hedges more expensive. So what I think you would see us do in this environment is not increase that position per se, but really focus on where is the most volatile point on the interest rate curve. And in an environment when the Fed is raising short-term rates, we expect that to be in the intermediate part of the curve. So we have concentrated our hedges now. 45% to 50% of our hedges are in sort of the 3- to 7-year part of the curve. And that gives us, we think, really good protection against the Fed raising short-term rates, and we also expect that to be the most volatile part of the curve and where our hedges should hopefully outperform.

Got it. And I guess over the years, you've used swaps. You've used Treasury futures. You've used options. I guess how do -- kind of in that context, you kind of answered the question about options today. But I guess how do you view Treasuries versus swaps as kind of the appropriate place to be hedged today?

Two considerations there. First, if you use these swaps, which are indexed to the secured financing overnight rate, that is probably the best rate, which will have the highest correlation with our repo funding. So that is going to give us, we think, the best correlation, the best protection of our short-term funding. So we're always going to err on using that. The next question is, how will swaps perform relative to Treasuries? Because you want the security as your hedge to be the one that's going to perform the worst, underperform from a rate perspective, if you will. So in today's environment, for example, with the Fed reducing its Treasury position, Treasuries rates may move up more on a relative basis than swap rates. So we tend to have a little higher Treasury mix in our portfolio in an environment where we think Treasuries are going to underperform swaps. So it really becomes a relative value decision between those 2 instruments. But the primary one is always going to be swaps because of the really favorable correlation to our repo funding.

Got it. And then just shifting to the -- while still small, the credit portion of your portfolio. I guess how do you see the relative attractiveness of investments in credit today? And how do those compare to what you can get on the Agency side?

Yes. As you say, the credit portfolio is relatively small in the context. And if you think about it from a capital allocation perspective, we have 4% or 5% of our capital allocated to non-Agency securities. And from our perspective, what we always do is we're looking at the relative value of those 2 instruments. And as we've said, if you look back over the last 12 months or so, Agency MBS have become more attractive relative to credit assets. So that's -- it's made that equation favor Agency MBS. We do expect credit spreads in the non-Agency sector, just broadly speaking, to begin to widen as the Fed moves to quantitative tapering and tightening because for the same reason they outperformed when the Fed bought a lot of assets, they should underperform when the Fed essentially reduces their assets. So we're a little bit more defensive there, but we have been able to find opportunities -- smaller opportunities but still attractive ones, and we'll continue to do that. But right now, the equation favors Agency MBS.

Got it. And kind of where -- which pockets are you seeing opportunity, if spreads widen as you expect that they might? What areas are you kind of paying attention to?

Well, we're certainly monitoring the credit risk transfer. And with Fannie Mae now becoming active again with those securities, the supply will be, we think, pretty significant coming from both the 2 GSEs on a go forward basis. So there could be some opportunities there. They have traded really well. We actually sold some of our CRT position in the fourth quarter because they were at such good levels. But we do expect some opportunities there over the long run. We've also found some opportunities in the higher quality, shorter duration, private label securities. We expect that to continue as well.

Okay. Why don't I just pause here for a second and see if anyone in the audience has a question. If not, I can continue. All right. Happy to continue. Can you just talk -- how do you think the financing the repo markets are likely to perform kind of as the Fed is pulling money out of the system?

I don't expect any disruption to the funding markets. I mean one of the things that obviously the Fed learned from the last experience is the need to maintain, as they said, the right size balance sheet. So I don't expect the sort of similar disruptions that we saw in 2018 and 2019. But also importantly, the Fed has now established 2 very significant repo facilities. They have the reverse repo facility, obviously, that is taking up a lot of collateral right now. But importantly, they just implemented their standing repo facility, which would be a facility that would provide liquidity to the Agency and Treasury repo markets on a go forward basis. That program just got stood up. I know that the participants are up and online. I know there's been some test transactions, but that should put a very effective upper bound, a cap that's tied to the federal funds rate. And I think that will provide a lot of stability to the repo market going forward. So I think the Fed has done a really great job of putting that facility in place just for environments like these when they're essentially moving assets from their balance sheet to the private sector where funding might be required.

Got it. And so you have your own broker-dealer, which kind of -- can you talk about what -- does that -- what funding -- what advantages does that give you? And -- or what are the environments where that -- those advantages might be greatest?

Yes. This has been a great addition for us is to be able to have our own captive broker-dealer, Bethesda Securities, which essentially gives us access to the FICC funding, which is essentially a wholesale funding. And what that allows us to do is access repo funding at more attractive "wholesale" levels versus going to a counterparty and doing that in a bilateral way. We're doing that with the with the clearinghouse, with the exchange. So it's very attractive from a credit perspective, and it's very attractive from a rate perspective. We've been running 40% to 50% of our funding through there. So we like having a combination of both a significant amount of individual counterparties as well as that. But from a capital perspective, Bethesda Securities also makes us much more efficient from a capital perspective because it allows us to have more attractive haircuts on that funding as well as it gives us the capacity to clear our own TBA trades at very attractive haircuts as well. In this environment where we've been operating with 30% or 35% of our assets in TBA form, that incremental savings in margin requirement means that we have a significant amount of unencumbered equity. So today, for example, we're operating at 7.5, as I mentioned last -- on our earnings call at 7.5 as well as having 40% to 50% of our capital unencumbered. And that significant unencumbered capital base, in large part, is due to the efficiencies that we pick up from Bethesda Securities.

So I guess that -- with that efficiency, would that -- if the environment was correct where maybe spreads overcorrected, would that give you confidence to maybe move a little higher in leverage than you would otherwise?

It's a combination, but that's certainly a factor. You always have to be thinking about, when you're looking at your leverage position, is how does your leverage perform and what happens to your position when the interest rate environment or the spread environment changes? You're always thinking in advance and making sure that you're never put in a position where you're forced to delever when you're managing a levered portfolio. So that unencumbered equity is always important. It will always go into our decision on what our proper leverage level is.

Great. Last minute or 2 here, just the last question. Just on share repurchase. You guys repurchased some shares in the fourth quarter. Just how do you think about that? And how does the -- while it's underlying volatility that we've been talking about, how does that kind of factor into your decision around share repurchase?

Yes. Well, first, I would say that capital markets activities, both with respect to share issuances and share repurchases, from our perspective, we believe, can be an incremental source of value for our shareholders. And I think we've proven -- have a proven track record of issuing capital when it's accretive to our shareholders and buying back capital when it's accretive to our shareholders. And obviously, our price-to-book ratio is an important consideration in that, but that's not the only consideration. We're always looking at the interest rate environment that you mentioned, the volatility of it and where are returns on new investments. Those are always going to be factors that you have to consider. When you're thinking about buying back stock in a volatile environment like we are, we have to think about our hurdle rate in that equation as being not only is it accretive to our shareholders, but if I retire that capital, what is the opportunity cost of that? Are we going to have an opportunity, for example, because spreads widen, to put on really attractive long-term assets? So that's the way we have to think about that is it's an input into our equation, but we also want to take into account the potential opportunity of putting on assets on a hedge basis that are really attractive relative to our current dividend.

Great. Peter, thank you for joining us. Thanks for your answers today.

Thank you for having us. Appreciate it.