David L. Finkelstein: Sure. Give us rate cuts, give us to QT, give us stability around the world and we’ll certainly raise leverage. But look at the end of the day here, if you look at our spread shocks, if we do experience spread tightening, we’re still going to get very good returns as we saw in the latter half of last quarter, just in terms of the overall model, we are generating a more stable return with less leverage than what a mono-line agency firm would deliver and we feel very good about it. Now to the extent there are some real green shoots out there as it relates to volatility in the market. Yes, we can increase leverage if spreads are attractive. And to the extent that we get a widening in spreads, we have ample liquidity and in the balance sheet to allow leverage to organically increase without having to worry about selling to manage our leverage.
So it’s a really good position to be in right here, Doug. But to the extent things do change for the better and the market is priced to that soft landing scenario, it’s priced perfection across all assets with possible exception of some mortgage related assets. So, we’re a little bit cautious here, but that could change.
Doug Harter: Thank you.
David L. Finkelstein: You bet, Doug.
Operator: Your next question will come from Jason Weaver with Jones Trading. Please go ahead.
Jason Weaver: Hi, good morning. Thanks for taking my question. I’m just going to dovetail off Bose’s question with a bit of refinement. I was wondering, can you ballpark the incremental ROE range for new deployment across both Agency and residential credit today?
David L. Finkelstein: Yes, I think we’ll go around the room here but in Agency look we could get mid-teens returns, upper teens returns on specified pools for example, moderate loan balance production coupon pools to the extent we can find them. There are some scarcity, but you can get upper teens in those assets. And then Mike, you want to give a little rundown on the resi front?
Mike Fania: Sure. Hi, Jason, this is Mike. In terms of securitization, the organic whole loan strategy, we’ll say that’s call it mid-teens using a modest amount of recourse leverage within the securities part of our portfolio call CRT that’s probably high-single-digits on call it two turns of leverage for below IG M2s. And then in terms of NPL, RPL, we’ll say it’s low teens on call it three turns of leverage. So, the majority our capital deployment within resi has been in the whole loan and OBX strategy given those returns.
Ken Adler: Hi, Doug, actually it’s Ken, we can give you a little color on MSR as well. Yes, I mean the MSR margin is providing with and we put it in the book around 10% to 12% return. Now those returns are a little bit lower because we do not material amounts of leverage on that strategy at this moment. Now we have the liquidity line, the ability to leverage that asset and drive those returns higher but managing with the context of the entire portfolio that return is additive to the overall target.
Mike Fania: And Jason just to add to that on MSR, we’re running that portfolio at four-tenths of a turn of leverage and given the low note rate nature of it and how benign the cash flows are, it could be levered to a greater extent. But if you think about it, the agency portfolio is doing some of that levering for it. And so if you consider the benefit of that then that gets those returns up into the teams.
Jason Weaver: All right. Thank you for that. That’s actually very helpful. I know David, you said in your prepared remarks about the shifting from treasury based hedges over to SOPR swap. Yes, obviously, we’ve seen what’s happened in swap spreads for the last, call it, 2.5 months or so since the end of November. Can you just elaborate on that shift in strategy a little bit and that’s what’s behind it?
David L. Finkelstein: Yes, sure. So, both November and December month ends, we did have a little bit of pressure in financing markets, which suggests that balance sheet assets might be a little bit heavy and that’s what led to a lot of the swap spread tightening that we experienced and for example, in the very front end of the yield curve at the two year level, two year rate, we got to negative 21 basis points on swap spreads versus treasury, so versus SOPR. So, the way we viewed it is that that will gravitate to zero through the passage of time over the two years and it made perfect sense to us to transition some of our two year futures over to paying on swap and just since the end of the year those swap spreads have gone from negative 20 or thereabouts to negative 14 this morning.
So, it’s been a good trade. We do still think that swap spreads are on the tight side particularly even out the curve with 10-year swaps at negative 36 basis points that to us looks a little bit tight. The Fed has obviously begun discussing the tapering of QT and as the Chair noted last week that will be an active conversation at the March meeting. To the extent they do move on that this spring, then we will get a little bit of relief as it relates to balance sheet and that should help swap spreads widen back out.
Jason Weaver: That’s helpful. And maybe some of that’s due to the last two months, $200 billion of issuance, but that’s new here or there.
