Smriti Popenoe: Okay, so right now I would say it’s the story in TBAs depends on the coupon. The higher coupons are still financing at a level that is lower than, actually no. The higher coupons are financing at a rate that is about equal or slightly higher than pools. In the belly coupons, like the 4 and 4.5 those are actually trading very special relative to pools. So it actually behooves you to have a TBA position in those coupons. In the lowest coupons, it’s actually very difficult to figure out just because there’s no production in the 2, 2.5 et cetera. So that just depends on what’s happening in the lowest coupon. But right now, the specialness in the role is actually limited to the 4 coupon and the 4.5 coupon. Everything else is either trading on top of pools or slightly above pools.
And in terms of cash versus unencumbered assets, I think that was your other question. We’ve continued to keep a fairly big allocation to our liquidity position. And Rob can give you the exact number of what we closed the year at. But you know what? I mean cash earns close to 5.5% here. So it’s not as big a drag on earnings as it was when we wait for [Indiscernible] which at that point you would be more inclined to hold pools or assets that yielded higher. So at this point with cash rates so high, you know, we don’t hesitate to hold cash if that was where your question was going.
Matthew Erdner: Yes, that’s helpful. And then talking about the supply and demand technicals with the Fed kind of getting towards the end of QT, do you guys have an opinion on, you know, if the Fed gets back in the market and when that might occur?
Smriti Popenoe: Look, we can only go by what the Fed is communicating — has communicated with respect to QT. Lori Logan gave a speech in January that I think is what kicked a lot of us off. From what we can tell, they’re interested in seeing quantitative tightening based on what they call the least comfortable level of reserves, right? The biggest part of QT, you really need to think about if there’s — it puts a floor on QT ending, you know, puts a floor on lots of things. It puts a floor on the amount of duration coming into the market. And that in and of itself, I think, is very supportive for mortgage spreads. Even if they reinvest only in treasuries, it takes out a yielding asset out of the market. It creates crowding out of private capital, and that creates a demand for safe securities.
And that’s, I think, very supportive. The other possible outcome of the end of QT is that delivered volatility goes down, because the Fed’s back in buying securities in the market. That’s also really supportive of mortgage spreads. And that — those are the things that I think just add to the idea that there’s been a shift in the technicals in the mortgage market.
Matthew Erdner: That’s helpful. Thank you.
Smriti Popenoe: You’re welcome.
Operator: [Operator Instructions] And your next question will come from the line of Eric Hagan with BTIG. Please go ahead.
Eric Hagen: Hey good morning guys. Hope we’re doing well. Do you guys feel like there’s good liquidity in the funding market to put on longer-dated repo right now to take advantage of what’s priced into the forward curve? And what’s the shortest that you can envision running the repo book if conviction builds around the Fed cutting maybe sooner rather than later?
Smriti Popenoe: Hi, Eric. Thank you for the question. So really the way we think about financing, number one I’ll tell you availability of financing is not an issue. We continue to have counterparties offer us financing. We’re able to fund out the term. I think we reported our weighted average term to maturity, original term to maturity is like 78 days. We’re not having any trouble running longer, longer dated financing, anything like that. So availability has been just fine. There’s been pressure around quarter ends, as you’ve seen, right? Like since September, there was a little pressure. December, there was a little pressure. So in general, we try to manage around those by funding out terms. So that hasn’t been a problem for us.
So yes, there is the ability to lock in financing to the extent that we want, and we disagree with the market’s pricing, et cetera, et cetera. You’ve seen us manage this book for a long time, Eric, and we’re always balancing two things. One is whether there will be quarter-end pressure and balance sheet pressure or event-driven pressure versus the risk of kind of running an overnight/shorter maturity book. And we kind of land somewhere in the middle. Some of our financing is going to be locked up and termed. Some of it is going to be not locked up and maybe rolling a little sooner. Typically, we have not been an overnight funder. And we’ve very rarely taken our financing lower than 30-days out. So we are looking to take term at opportunistic levels when we see that in the marketplace.
In general, we tend to be more focused on avoiding funding disruptions than kind of trying to make money off the financing book. It’s a risk that we just don’t feel like it’s good for us to expose our shareholders too. So we end up actually just really respecting where we get our financing and making sure that it’s locked up before we — if there’s any kind of economically turned benefit that we can get from thinking about the Fed expectation versus not, we would be using hedges to help us take advantage of that.
