AGNC Investment Corp (AGNCL) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the AGNC Shareholders Call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question and answer session.

Instructions will be given at that time.

(Operator Instructions)

And as a reminder, this conference is being recorded.

I would now like to turn the conference over to Amanda Cuthbertson, please go ahead.

Thank you, Mary, and thank you all for joining American Capital Agency's Third Quarter 2008 Earnings Call.

Before we begin, I'd like to review the Safe Harbor Statement.

This conference call and corresponding slide presentation contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act.

Actual outcomes and results could differ materially from those forecast, due to the impact of many factors beyond the control of AGNC.

Certain factors that could cause actual results to differ materially are included in the Risks Factors section of AGNC's prospectus dated May 15, 2008, and periodic reports filed with the Securities and Exchange Commission.

Copies are available on the SEC's website at www.sec.gov.

We disclaim any obligation to update our forward-looking statements.

An archive of this presentation will be available on our website.

And the telephone recording can be accessed through November 14th by dialing 800-475-6701.

And the replay passcode is 962744.

To view the Q3 slide presentation we're going to be using during this call, please turn to our website, www.agnc.com and click on the Q3 2008 Shareholder Presentation link in the upper right corner.

Select the conference call option to view the streaming slide presentation or the webcast option for both slides and volume.

Participants on today's call include Malon Wilkus, Chairman, President and Chief Executive Officer, John Erickson, Chief Financial Officer, Russ Jeffrey, Senior Vice President and Chief Investment Officer for AGNC, Bob Grunewald, Managing Director and both Raymond Yu and Edward Smith, Vice Presidents with AGNC.

And with that, I will turn the call over to Malon Wilkus, our CEO.

Thank you, Amanda, and thank you, everyone, for joining us today.

We had a great quarter with Agency.

And actually were able to take advantage of some of the volatility in the quarter to perform, I think, exceptionally well for our shareholders.

And we'd like you to turn to slide four and I'm going to actually pass it over to Bob Grunewald, who is our Managing Director of our Financial Institution Group.

He's going to briefly cover this and then pass it on to Russ Jeffrey.

Bob?

Great, thank you, Malon.

Let me begin on slide four and just give a quick overview of our third quarter highlights.

We are pleased to have declared a dividend of $1 per share.

We generated net income of $18.9 million.

This equates to $1.26 per basic and diluted share, and obviously generated an ROE of 28.3%.

The annualized net interest spread was 3.05%.

This is generated by a portfolio of $1.6 billion, which still remains 100% fixed rate Agency securities.

We have repurchase agreements as of September 30th of $1.4 billion, and leverage of 5.4 times.

All of this was done with a book value as of September 30, 2008 of $17.85 a share.

At this point, I'd like to turn the presentation over to our Chief Investment Officer, Russ Jeffrey.

Thank you, Bob, and thank you all for taking an interest in Agency.

In these volatile times, we thoght it would be important to kind of review the basics and what we would call the three pillars of successful mortgage investing.

And that first pillar is value.

And when we look at value, we look at the total return of the portfolio which is the price change and the yield and the repo rate and the haircuts.

And we also think underwriting is very important.

And that's understanding what you own and how those assets will move in price over time.

And the third leverage which has heightened importance in this market is leverage.

And that would be the prudent and proactive management of the balance sheet.

If you all turn to slide six for our market commentary, and as everybody knows, there's a massive government intervention in the mortgage market.

Despite this intervention, mortgage spreads have actually widened to their widest levels historically.

That these wider mortgage spreads have actually caused heightened volatility, less liquidity.

And then on a more fundamental note, prepayment remains slow.

And obviously, prepayments are slow because wider mortgage spreads mean higher mortgage rates.

So despite massive Fed easing, the mortgage rate this morning sits right around 7%.

And the other important note is that the risk dynamics have evolved over the last few months.

That the traditional risk of a mortgage market involved interest rates, prepayments and duration, but really a more important risk, we think right now, is this idea of counterparty and funding exposure which we think is vital to the franchise.

And so, we think balance sheet management is critical.

And one of our core themes right now is the theme of defense, of being very defensive in these volatile and dangerous times.

As you turn to slide seven, where we want to talk about risk management; that a prudent manager would look at this heightened risk and make necessary portfolio adjustments.

And that's exactly what we did.

Given this increased volatility in the quarter, we actually reduced our leverage proactively from 8.3 times as of June 30th to 5.4 times on September 30th.

During the quarter, as we mentioned, we proactively decided to sell assets on the tune of almost $750 million dollars, recognizing a nominal loss of about three basis points.

Additionally, this heightened volatility -- and one simple way to look at that volatility, is the MOVE Index which is the bond market equivalent of the VIX in the equity market which is at record levels, allowed Agency to develop and implement an option strategy by using options, which was accretive to both ROE and EPS.

Overall, the strategy enabled us to insulate our book value and enhance income.

During the quarter, Agency generated a $4.5 million gain from this strategy.

All in all, we were able to reduce risk and protect our portfolio while enhancing returns by monetizing the heightened volatility.

Let's talk a little bit more about this option strategy.

One way to think about it, from an equity perspective, is it's similar to doing a covered call in the equity market.

You have longer security and you can actually sell options in that security.

And you can set those strikes at higher prices, so a counterparty will be willing to pay you a premium, or in this case, premium income, for the right to buy our assets at higher prices.

A couple of critical points to know about that is, obviously that strategy is not available for investors who own illiquid, unfavorable, structured, mortgage securities.

Which include ARMS or CMO floaters or pretty much any structured product.

But when you have a high quality fixed rate pass-through security, where the cash flows are backed by the full security of the US Government, you're able to implement these strategies.

And one other point about options is that options are morally neutral, they're need a good nor bad.

You could use them for specular purposes, which we would reject, but you could also use them for a risk management tool.

And that's exactly what we've done.

We've actually reduced the duration of the portfolio, subjected our shareholders to less market value risk, while creating more income for our shareholders.

If you -- now turn to slide eight, where we talk about the asset mix of the portfolio.

And not much has really changed with our asset mix, except that the portfolio is smaller.

We continue to see the bench book-to-value in the mortgage market in premium mortgage-backed securities.

And the reason we still like premium mortgage-backed securities is that prepayments are even slower than what we might have expected.

Virtually all mortgagees are prepaying in single digits.

We don't see that changing any time soon.

They remain very liquid and once again allows us to implement our option strategy.

Turing to slide nine, we talk about what we think is a pretty critical slide and that's our financing and hedging strategy.

As of 9/30 we had $1.4 billion of repo; none of it was more than 10% of any counterparty.

We continue to be in active discussions with several other repo providers to further broaden and diversify our relationships, we assess each of our counterparties and manage our exposure accordingly.

And we'd like to highlight that since our IPO, we've had no exposure to Lehman Brothers.

We have seen haircuts increase in this volatile time, but for the most part for our securities, the haircuts are still around 5%.

Once again, because they're the highest quality fixed-income securities in the universe.

On the hedging side, we had about $700 million of notional value, representing 50% of our outstanding repo.

And as you recall from our last quarter's call, those were basically cash flow neutral -- will come on in Q4.

And finally to slide ten, where we talk about the business economics.

Slide ten shows three columns, one with the business economics in the third quarter, one with the figures as of September 30th and the far right column, with figures for the period since our IPO in May through September 30th.

For the quarter, our average net spread was 305 basis points on average leverage was just under seven times which generated a net ROE of 20%.

As you can see, our covered option strategy was highly accretive generating about 5.5% of additional ROE on an annualized basis in the quarter.

So let me summarize, because of the mortgage valuations, we see this as a return rich environment.

Mortgage spreads at all [time wide] compared to US Treasury's in just about any other benchmark.

We feel, at Agency, we have the team and experience to navigate this market and generate value for our shareholders.

All right, that's the end of our formal remarks.

So, why don't we open it up to a few questions, Mary?

(Operator Instructions)

Our first question is from the line of Jason Arnold from RBC Capital Markets.

Please go ahead.

Hi.

Yes, good morning, guys, nice job this quarter.

I guess to start with on leverage, you guys took leverage down to very conservative levels here in the quarter.

And I was wondering what we should expect here going forward into Q4 and then beyond?

Yes, thank you, Jason.

I think one thing that we've been emphasizing in all meetings and the way we manage our portfolio is that, we're not passive when we see markets change.

And we feel that it's our duty and responsibility to shareholders to work tirelessly to kind of constantly quantify risk and not to subject our shareholders to undue risk.

So by seeing some of the developments in the third quarter, as you can see, we reduced leverage.

That's not to suggest this is a permanent level of leverage fall off, but even maybe this quarter.

And obviously, the Fed has lowered rates by 100 basis points just in the month of October.

Just this morning, we're seeing some pretty good improvements in the repo market.

But the reality of it is, as we change our leverage, it's not very difficult to buy mortgage assets.

And we don't see that changing any time soon going into year end.

Yes and if you recall, when we went public, we talked about six to eight times and that was even in May this past year.

And that seems like a -- years ago at this point.

I mean, a lot has transpired since we went public.

And certainly in today's environment, we think being below the range we've set out at the IPO is the prudent and defensive thing to do.

And then obviously, we can take leverage up when we become more confident in the environment.

Okay, so it sounds like, even given that there might be some further turmoil here ahead in the remainder of Q4 as we close down the year, that you'll probably stay below that average level.

And then maybe look to pick up next year, assuming things improve?

Is that a correct assumption?

Yes, I think, John makes a very critical point.

I think we have to recognize that the markets have changed from even three short months ago.

I think the idea of anybody being leveraged, quite frankly, 12 to 15 times is the equivalent of somebody's being levered 25 times by the turn of the year.

So, I think we recognize that the market's different.

And I don't think you can be delusional on these kinds of markets.

And also in wider mortgage spreads, you don't need to be levered ten to 15 times.

If mortgages are roughly 350 or 400 over the curve, which is where they are, lower leverage would suggest that you should get very attractive returns for your shareholders even implementing, what we would feel, is a yield enhancing strategy by selling covered options.

Yes, I know -- I definitely agree.

Conservative is much better than aggressive in this environment for sure.

So that makes sense.

Perfect.

Okay and then I guess you commented a little bit about repo.

But I was wondering if you could give us a little more color on kind of what you're seeing on rates.

You mentioned that haircuts were around 5%, so that's good.

And then I guess just the general availability of repo carried at this point in time.

Sure, I'm going to have Ed Smith talk.

His time has been exclusively dealing with repo counterparties.

And Ed's going to give you some pretty good color on the repo market.

Ed?

Hey, Jason, we have seen haircuts tweak up a little as you mentioned.

But given the high quality of these assets, we plan on keeping a leverage around here.

So I actually think rates will stay in the average, for example.

I got quotes this morning of around 250.

If you look back at the average for our quarter, the third quarter, it was 245.

So I think we're going to be back in that neighborhood really quickly.

Yes, Ed, probably mid October is probably the worst point for repo, wouldn't you say?

Absolutely.

[I see people] starting to feel like they're better.

Absolutely.

Yes.

Okay, great.

And I think (inaudible), it's reasonable to think that repo costs could even drop another 50 basis points if the quarter plays out.

That's true.

Excellent, okay.

And then I guess a final question here.

Can we expect you guys to continue to utilize the option strategy in the portfolio going forward?

And I guess on that same note, when are the current calls that are in place expiring?

I mean, our point of view is that volatility's been pretty high in October.

So I think it's fair to assume that we have used that strategy this month.

So once again, everything we do is at a relative value basis.

So because we -- we're able to extract that from the market that that's something that we're going to continue to look to do in the quarter.

Yes, there's a real correlation between volatility and the use of options, right?

The higher the volatility, the more you get paid to use options.

And here we're using an option, as Russ said, like a covered call where the worst case is somebody takes and they're paying you a premium for that option.

They buy your mortgages at a higher price and you do lever with it.

We think that's a prudent strategy.

So I think the use of options will correlate somewhat to where volatility is.

And when you see volatility come down, presumably you receive the use of options going down and the use of leverage going up.

Great, no that's a good way to make money in volatile times, for sure.

That makes sense.

And can you tell us what --?

I just want to make sure we get everybody on the call.

Sure, yes -- no, just final one here, just notional value on the calls?

Yes, the average has been per month about 200 million to 300 million, give or take.

Okay, thank you so much.

Yes.

Thank you, our next question is from the line of Mike Widner from Stifel Nicolaus.

Please go ahead.

Good morning, guys, thanks for taking the questions.

And great top line results.

I've got some questions about the details here.

Let me first follow-up on one of the last comments you made.

Repo quote today, you mentioned 250.

Just wondering if that's representative of the entire mix, or if that's low end of the range?

Because we've been hearing from peers, more along the lines of 3% on average with the range being 2.5% to 3.5%.

Yes, I mean, just to speak for Ed and me, I think the difference with our repo rate is we have the highest quality assets.

So Ginnie Mae's [recall] much better, for instance, than randomly hybrid ARMS or CMO floaters.

I mean once again, Ginnie Mae's -- the level on the Fed window there is also a liquid [TVA] dollar roll market for Ginnie's net implied repo rate, is actually like 1.5%.

So it's actually in people's interest to repo Ginnie Mae's.

So there is a big spread between the quality assets in both the haircut and the repo rate, again the market's making a pretty big distinction between that right now.

Okay so bottom line, what I'm taking away from it, if I'm interpreting you correctly, 2.5% today is about average for your portfolio given the Ginnie concentration.

And I'm assuming you mean 30 day repo as opposed to one week or shorter term?

That's right.

Okay, let me just see if I can understand your option strategy a little bit better.

I guess one of the things that I noted is that when you described it just now, qualitatively, it sounded a lot like a hedge.

But when you put it in writing, you never describe it as a hedge.

And I guess what I'm trying to get some comfort with is, is it really a hedge?

If that $0.30 goes away next quarter, are we left with core earnings of $0.96?

Or, is this really genuinely a hedge?

And then I guess the other thing I'll throw in there, your speech on the wisdom of using call options and covered calls.

Certainly I understand that.

But what we've seen in that equity markets right now, and I would contemplate what we see in the bond markets, is that as you see volatility increase, your cost to actually enter a call or any sort of option, obviously goes up in accordance.

So I understand that calls are useful in a volatile market, but only if you book them before the market gets that volatile.

So anyway, any color you can give that sort of helps me gain or helps us gain some confidence that this option strategy is really a hedge.

And that we should look at $1.26 as opposed to $0.96 as really the core earnings number.

One way to think about it is if you have any security, let's say in our case where we have, as you know, fixed rate mortgages, let's say [Ginnie sixes] as an example.

That if the choice of having Ginnie's fixes with no calls versus Ginnie sixes with a short call, the mathematical duration of that would be lower.

Okay, so in other words, if we got say a point for selling a call on Ginnie sixes and then Ginnie sixes would then decline a point, that the shareholders would get -- loose a point and book value of a gain a point in income.

As we said at the beginning of the presentation, we look at the total return on the portfolio.

We're trying to do two things for our shareholders; protect their book value and generate income, not just looking at one side of the equation.

So I think anybody would agree that having an asset and [selling] a call against it, is less risky than having the asset say stay on it's own or what someone would call naked.

And the other thing with the mortgage market is that mortgage prices are moving idiosyncratic than say, other prices.

So one question people often ask on these calls is what's your duration?

Well the reality of it is, mortgages may be going down in price, when actually Treasuries are rising or vice a versa.

So calls are a much better correlation against say our assets.

Now the other point that you mentioned about the premium is that we're actually selling options.

So we're receiving premiums.

So to John's earlier point, we're benefiting from higher volatility.

So we think the option premium we're getting is higher than when the volatility was lower.

And the next question you might ask is, what happens if volatility goes lower?

Well, when volatility goes lower, mortgages tend to tighten because now that cash flow is worth a lot more.

And so, our shareholders would benefit because our book value would go up.

So if we look at this whole mix, it obviously may seem somewhat complicated, but that's the advantage of being part of a big infrastructure where we have the most robust risk systems and models and a team with a lot of extensive experience.

And this is what we spend our time doing, protecting shareholders book value by generating attractive ROEs.

But your earlier point about the run rate of the portfolio when you take the option income out is lower.

But as we said before, if volatility remains high, then it's safe to assume we'll continue to be able to capture some option premiums and enhance returns.

When the volatility shrinks, that will be the environment which you then start using more leverage.

So then the leverage assumption in your model goes up and we could pick up return through leverage.

Great, well one final question on this.

As far as the REIT rules are concerned, the income that you got -- this $0.30 that you got.

That is presumably not considered sort of good REIT income.

So does this strategy run the risk of hurting you from a REIT requirement standpoint?

And is it going to be taxable in the end?

Yes, this is Bob Grunewald, we recognize those [REIT pools] and our capital to manage within them, so it is not in the good bucket.

But it is not expected to be taxable given that we are managing it within the appropriate REIT buckets.

Okay.

I guess, if I -- I mean, if I look at your total earnings, $1.26 and 30 of it is this -- I mena, it's basically 25% of your income sort of --.

It is an annual [tax], so we're confident that we'll be in compliance on an annual basis.

All right, well I appreciate the clarity, guys, and congrats on a good number.

Thank you.

Thanks.

Thank you, our next question is from the line of Don Fandetti from Citigroup.

Please go ahead.

Hi, Russ, a quick question.

Obviously, it seems pretty prudent that you've brought down your leverage.

I was just curious on your thoughts on whether or not you think this will be a trend in this space for some of your peers perhaps?

And is there an element of the deleveraging that is repo [debt] driven or it is 100% management driven?

This is 100% proactively management driven.

We have had no requests to reduce our leverage.

In fact, we've actually -- we have moved leverage from certain counterparties where we were not satisfied with the terms and rates we were getting.

In terms of what our competitors are going to do, we don't like to comment on our competitors because we're not sure exactly what their doing with their portfolios.

And it's really not of much interest to us.

But what we do know on a global basis, there is a deleveraging taking place.

And that talks to my earlier comment, I think the days of REITs being levered 10 to 15 times is really a different era.

And so, we're in the midst of a -- what we've been call, deleveraging vortex and it makes -- it now makes prudent -- it's prudent to get in front of that, and not to be kind of the last person to delever.

And I think that's why we want to have both liquid assets that allow us the flexibility to reduce leverage as we choose to, and not to have Wall Street firms manage our leverage.

And if we decide to increase our leverage, with our strategy it's a pretty easy thing to do.

Okay.

And in terms of MBS spreads -- Agency MBS spreads, obviously the policy makers want to keep rates pretty low.

Even with that, do you think there's some risk just given supply demand imbalance that spreads could actually widen?

Or, do you feel like it's a pretty good bet that they're going to remain at current levels?

On the short term because they're going through quarter ends and year ends and still obviously congestion in the system with a lot of major financial institutions having to sell a lot of mortgage-backed securities.

But I would say that mortgage prices are at a point where literally everybody should buy them.

And some people are, I mean the biggest bond fund managers in the country, you know, king and queen of the bond markets are probably Black Rock, Pinto, and they've got record allocations to mortgages.

And if you look at some other -- I mean, the US Government is about to buy literally hundreds of [millions] mortgages and they're going to sell Treasuries to do that.

So I think it makes sense for anybody, who's got a fixed income allocation, to buy these very high quality mortgage assets.

And we think the most effective and efficient way to do that is by owning Agency, where you get not only mortgage-backed securities, but them slightly levered and you get the advantage of using some of these strategies that maybe aren't available to most investors.

Okay, thank you.

Thank you, our next question is from the line of [Trevor Cranston from JMB Securities].

Please go ahead.

Hi, thanks for taking the question.

Getting back to the income from that option strategy you guys are using, how are you going to think about that to the extent that it's recurring in future quarters when you're setting the dividend?

Is that likely going to be paid out on a quarterly basis?

Or, would that be retained?

Well, let me ask John --.

Yes, I think obviously we're actually not trying to pay 100% of our earnings.

We're trying to manage within the REIT test.

So we will retain some portion of the earnings and still meet the REIT distribution requirements.

And hopefully, that'll take a little bit of volatility out of the dividend payment stream.

Okay.

And the only other thing I had -- the G&A expenses for the quarter, is the level this quarter -- a good number to think of as a run rate?

Or, are there any one time items for the third quarter that we should take out?

Bob, you want to take that?

Yes, no, I don't believe there are any one time items for the quarter.

The run rate is still stabilizing.

We're just a relatively young company, only in our second quarter.

But we're getting close to an expense rate that is a reasonable run rate on an annualized basis.

And we're relatively small for our strategy, I think.

As our equity base were to grow over time obviously, then as a percentage it would come down.

But right now, you get a fair number of fixed costs like the auditor cost and the legal and compliance costs of being a public company as well as the systems.

And we are bearing some state of the art systems as part of this, which, as we grow over time, we'll be able to fade that across a much large capital base hopefully.

Okay, that's all I've got.

Good quarter, thanks for taking the questions.

Thank you, Trevor.

Thank you, our next question is from the line of Matthew Howlett from Fox-Pitt Kelton.

Please go ahead.

Thanks for taking my question.

Russ, just on the relative value, you like the [option] coupon trade.

It's worked well for you, prepaid are -- so they are much lower than you expected.

And they appear cheap right now, option coupons really appear cheap now.

Now how do you look at that going forward?

The refi index was up substantially on Monday.

There's a lot of talk about the Government trying to bring down mortgage rates.

There could be Ginnie Mae buy downs and so forth.

At what point would you bring the cost basis down?

Or, do you think this is a head fake and things are going to continue to slow?

Yes, I mean, even though there was that spike in refi index, if you look at the refi index over the last 12 weeks, it's actually at a pretty depressed level.

In fact, that's a laggard indicator as you know and now as I think the holiday shortened week as well.

But with current coupon mortgage rate close to 7% -- the other thing that's happened is that the split between a primary and a secondary rate is gapped wider as well.

And everybody knows about less mortgage availability, that the percentage of ARMS are at a record low.

It was over 50% in '03 and now it's less than 3%.

So you've got a wider [tactical] factor.

There is talk about how the government's going to make everybody have a 4% mortgage.

And so everyone's going to maybe walk away from their mortgage and get a free house and car in the process.

And one former President had a quote about that, that he said the scariest words in the English language are, I'm from the Federal Government.

I'm here to help.

The reality of it is every government program that's been initiated, has caused mortgage credit to go progressively wider.

Last summer we had FHA HOPE.

How did that work out?

Mortgage spreads tightenend because everybody read Barron's that week in the Wall Street Journal and they tightened 20 basis points then widened 30.

Then we had FHA Secure.

Then we got the naturalization of Freddy and Fannie which basically the government guaranteed Freddy and Fannie as if they're Ginnie Maes.

And after all this, and after 300 or 400 basis point of easing by the Fed, the mortgage rates actually climbed 7%.

So there's nothing that we see that would indicate you're going to have turnaround in the housing market or change in the prepayment of environment.

And the other thing about the [upping] coupons, to your point, it's also cheap when you consider the shape of the curve.

As cheap as it looks, we think it looks even cheaper when you think of the fact that two years or five years or 100 basis points, five years or ten years is no [longer] basis points, and the mortgage market really doesn't penalize you for shortening duration.

There are some places in the mortgage market where you can cut your duration in half and get a low coupon.

One example, we don't have 15-year security bonds, let's talk about some [L] to value.

You could own the same security in 15 years versus 30 years at almost the same dollar price.

That would be 15 years fixes to 30 year fixes.

So we think there's a lot of inefficiencies in the mortgage market.

We think the upping coupon in this world is a pretty defensive safe place to be.

So we're still very constructive on it when we look at the entire mortgage universe.

Yes, one other comment there about the expectation of prepayments [speedd].

When we set up -- started work on the Agency REIT going back to last February, Russ had a very draconian view on repayments.

And we felt like the repayment speeds were coming in slower than all of the models and all the expectations.

And that's why we did the premium mortgage strategy.

And so really, I would say that that prepayment speeds are coming in to -- in ranges where Russ was suggesting that they were to come in when we even set the strategy up.

Yes, I know, it's been an excellent strategy so far.

The Ginnie Mae portfolio has worked out very well.

It came in a little bit, as a percentage of the opposed quarter.

Would you look at taking that up potentially given how cheap their premiums have come in?

Or, is there anything you can give us on how the make shift is going to look like when you begin buying assets?

Yes, I mean, yes, I agree with you about your conclusion of a Ginnie Mae premium valuations.

That would obviously be one other place we could potentially target at the purchasers.

And then there's all the sectors of Ginnie Mae market that are even cheaper.

There's a -- once again, a new government program which has everything worked out.

It's called the [NJM] or Ginnie II Program.

You could buy, for instance, Ginnie May [six and a half's] at roughly -- actually a lower price than say Fannie Mae sixes.

So you could actually have a higher quality asset, have more coupon at a lower price than a lower coupon Fannie Mae.

So there's a lot of disjointed situations like that in the mortgage market that we will look to exploit going forward.

Great, thank you, and congratulations.

Thank you.

Thank you, there are no further questions.

We'll turn it over to Malon Wilkus for closing comments.

Thank you very much, folks.

We do feel like we had a great quarter and that we have established ourselves as an outstanding Agency REIT that can perform for the market, and to our shareholders and we're looking forward to doing a lot more.

Certainly feel free to give us a call if you have questions.

We're always happy for those.

And I look forward to getting together again in a quarter from now.

So thank you very much, bye-bye now.

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