Invesco Mortgage Capital Inc (IVR) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, welcome to Invesco Mortgage Capital Inc.'s investor conference call held on November 3, 2011. All participants will be on a listen-only mode until the question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded. Now I would like to turn to call over to the speakers for today -- Richard King, Chief Executive Officer; John Anzalone, Chief Investment Officer; and Don Ramon, Chief Financial Officer. Mr. King, you may begin.

Thank you, operator. Good morning, everybody; welcome to the third-quarter 2011 Invesco Mortgage Capital earnings call. Presenting with me on the call today are Don Ramon, our CFO; John Anzalone, our CIO; and Rob Kuster, our Chief Operating Officer, is here also for Q&A.

Let me start by giving you an overview of third-quarter results, a discussion of market factors in Q3 and what we did with the portfolio at a high level. Our earnings were $0.79 per share, we paid a dividend of $0.80 and book value was $16.47 per share. Don will get into the detail on these and the factors driving our results in a few minutes.

There were a number of headwind issues impacting the mortgage market and Invesco Mortgage Capital in Q3. The European debt crisis, the US debt limit/budget issues, along with generally weaker economic data brought fears of double-dip and risk off trade that led to lower prices on non-agency RMBS and CMBS. At the same time the administration pushed for a refi program aimed at helping underwater borrowers.

This effectively put a lid on agency mortgage prices causing them to lag the rally in rates. Lower rates were encouraged by Fed policy, and that is first the statement that they'd be holding the funds rate at current historic low levels until mid-2013, and then commencing Operation Twist where the Fed essentially tried to engineer a flatter yield curve.

The combination of these events pressured our book value lower. Later in the quarter and into the fourth quarter we've seen some of these headwinds ease as recent economic numbers have proved to be more resilient than many expected. In addition, the HARP changes announced by FHFA are not as severe as some worried and, most importantly, shouldn't materially impact us.

And then finally, in Q3 we acted to improve the positioning of our portfolio with respect to these economic and financial conditions. We used new capital to buy high-quality assets with robust structural enhancement and we bought prepaid protected agency RMBS, which decreased the percent of our liabilities that we have hedged with swaps in light of the said policy change.

We also partnered with Invesco Real Estate and WL Ross and some other partners in buying a portfolio of CRE loans, which we expect mid-teens returns on. With that high-level preview, let me turn it over to Don to review the financial performance.

Thanks, Rich. Turning to page 3 in the presentation, you can see that our net income increased $82.2 million and, as Rich indicated, primarily driven by the increase in the average portfolio size as a result of the capital raise. With the increased portfolio we saw net interest income grow by $13.1 million during the quarter.

During the quarter we also saw other income decline by $3.5 million. The key components in this area were a gain on sales of assets which remained unchanged at about $3.6 million for the quarter, and then earnings from the PPIP investment which we saw a decline of about $3 million.

Keep in mind the PPIP investment is an equity investment and changes in the valuation of that portfolio flow through earnings and the decrease primarily represents the adjustment in the value of those assets.

As our EPS came in at $0.79 for the quarter, we believe this is strong in light of the economic conditions and also while we were ramping the portfolio. This resulted in an $0.80 dividend for Q3.

Moving on to page 5, you can see that gross ROE continues to be in the 19% range and has held steady due to the asset selection and sector rotation. As John will cover in more detail later, we focused our agency strategy on prepayment protected pools that continue to deliver slow CPRs and we have assembled a credit book that we believe is very high quality.

On the right side you see the portfolio yield remained constant at 4.2%. We did see some compression in the net portfolio yield as our cost of funds increased 22 basis points as a result of our hedging strategy. While we didn't add any swaps during Q3, we had approximately $4 billion worth of swaps that were added in Q2 and Q3 saw the full expense related to those swaps.

Moving on to the next page you see a breakdown of the book value change for the quarter. As you can see, the increase in agency RMBS lagged the movement in swap book primarily due to prepayment fears associated with refi.gov and the lower rate environment. This resulted in a net decline of 154 for Q3.

For the quarter we also saw the five-year swap rate decline an additional 78 basis points which put pressure on the swap valuations. With an average swap maturity of 4.7 years this index gives the best indication of how our overall swap values perform over time.

During the quarter we continue to see pricing pressure on credit assets as the overall market assesses the risk associated with Europe and a slowing economy. Fundamentally our bonds continue to perform very well and the expected cash flows are in line with our expectations. As a result we believe the decline in value is temporary and we've not recognized any other-than-temporary impairment on the portfolio.

With that I'll turn it over to John Anzalone, our Chief Investment Officer, to go through the portfolio.

Thanks, Don, and thanks, everyone, for dialing in the call this morning. I'll run through a review of the portfolio and then open it up for a Q&A. Slide 6 shows that we increased our equity allocated to agencies with the last capital raise and we had 51% of our equity allocated to agency mortgages at quarter end. Our allocation to non-agencies declined to 30% of equity and our allocation to CMBS was roughly unchanged.

Our equity investment, labeled PPIP/Other on the chart, increased from 2.6% to 5.7% of equity, and I'll go over that in more detail later in the presentation. Total leverage ticked up reflecting the greater allocation to agencies.

Moving to slide 7, in agencies we continue to focus on security selection and have concentrated the portfolio in loan balance stories, credit impaired borrowers and investor property pools. Speeds remained very well contained during the quarter as our 15- and 30-year collateral both paid under 10 CPR. While we saw an uptick in speeds in our Hybrid ARM book as those pools paid 14.9 CPR, our overall agency book paid in the very low teens.

Leverage remains steady at 9.3 times versus 9.5 last quarter. We saw an increase in funding cost as repo levels were about 5 basis points higher and the impact of swaps that began in the second quarter was fully realized. The prepayment print from early October reflecting September prepayments was once again favorable; we saw overall speeds of 14 CPR on the agency book for the month.

On slide 8 we provide a look at our potential exposure to HARP 2.0. We don't expect to see a significant impact to our portfolio given the changes to the HARP program. Even with these changes there are still significant hurdles to refinancing, most notably in the form of originator capacity constraints.

As far as our exposure goes, we estimate that approximately 96% of our agency pools will be unaffected by these changes. Nearly 75% of our agency book is made up of pools where everyone was originated after the HARP cutoff date of June 1, 2009. 18% were originated pre-cut off, but have characteristics such as low loan balances, favorable geographic concentrations or are made up of investor properties. 3% are very well seasoned which we consider 2004 and earlier and therefore tend to continue at a much smaller percentage of deeply underwater loans. That leaves approximately 4% of our book at some risk to HARP refinancing.

Moving on to non-agencies in slide 9, we continue to favor senior re-REMIC bonds and they now account for 62% of our non-agency portfolio. Yields on the portfolio are down slightly which reflects the move towards higher-quality assets with a lower risk/reward profile but higher leverage. The leverage on this part of the portfolio increased to 3.7 times as a result of the move towards Senior re-REMICs and also reflects lower prices on our positions.

On slide 10 we highlight our CMBS portfolio, we added positions in both legacy and CMBS 2.0 during the quarter. We sold approximately $100 million in super senior fixed-rate bonds into the rate rally. CMBS has been impacted by headline risk as the sector is a liquid way to hedge macro positions. As spreads have widened we have moved up the credit stack into A and AA paper maintaining book yield. And as we focus on loan level credit analysis we believe we're investing in the highest quality bonds in each sub-sector in vintage.

Slide 11 compares our CMBS performance versus the CMBX indices. Really the salient point here is that our positions performed in line to the indices when the market was stable, but have outperformed during the recent volatility. The chart on the left shows our price performance versus CMBX.5 AM and AJs, which are from the 2008 percentage. These indices suffered significantly with the AJs down 40 points from the peak.

The chart on the right shows how the more seasoned CMBX.1 from the 2006 vintages performed. Again, we see that our bonds have performed significantly better than the broader market. Price declines have been macro driven and not driven by changes in underlying fundamentals. In fact, the fundamentals of our book have remained in line with our expectations and are unchanged.

Moving to slide 12, our equity investments, PPIP and other participations increased from 2.6% of equity to 5.7%. This represented an increase of about $76 million. As Rich mentioned, IVR participated with Invesco Real Estate and WL Ross & Co. to purchase a pool of commercial loans. This included a $26 million increase in our investment in the Invesco Mortgage recovery fund, which is the lone sleeve of our PPIP investment, and a $40 million direct investment in a new joint venture. And as always, we continue to look for new opportunities in this space.

Slide 13 provides a financing update. Overall leverage increased slightly to 6.3 times as we allocated more equity to agencies and moved into higher-quality credit. Lower dollar prices on our credit book also contributed to higher leverage. Leverage on our CMBS book remained steady at 3.9 times and no new swaps were added during the quarter.

And finally, on slide 14 we give a list of our counterparty exposures. Over $12 billion in repo was spread over 24 counterparties and almost $7 billion in swaps were spread over nine counterparties. And with that I'd like to open the call up for Q&A.

(Operator Instructions). Bose George, KBW.

Had a couple of questions. First, you noted in the release that your funding cost increased because of additional expenses related to hedging, but your swaps are unchanged, your repo funding cost is up just a tiny bit, so I was just was wondering what was driving that increase in cost of funding?

Yes, Bose, primary for it is a couple things. One, when we enter into most of our swaps we usually do it on a forward starting basis, so they may be three months forward starting. And so that's primarily the reason.

But again, the same $4 billion worth of swaps that I mentioned, they actually -- they did start within second quarter, but it depends on the timing of when they did start. So, for example we had some that started right at the end of the quarter so you wouldn't have had a full quarter of that swap expense in Q2, but you would have had it in Q3.

Okay, but then if nothing changes this is kind of a run rate in terms of the cost of funds?

Yes, it should be pretty close to that, yes.

And then just switching to the commentary you guys had on slide 11 on CMBS prices. I wasn't clear, does that go past 9/30 or can you give some commentary on what's happening with prices since then just given the rebound in the indices?

Yes, 9/30 prices on our book have been I would say broadly flat on CMBS.

Okay, how about on non-agency?

Maybe slightly down, but it's very -- very close to being unchanged.

Okay, great. Thanks.

Trevor Cranston, JMP Securities.

I just had a follow-up question on the number you gave for the pre-payments in October. I was wondering if you'd comment on what your expectations are for the remainder of the quarter, whether or not you think prepayments that are on the agency book are likely to continue to trend upwards or if the October number was the peak that you expect for the quarter? Thanks.

Yes, thanks. Yes, I would say the October print -- I wouldn't expect prepayments to increase all that much from here. I think rates hit their low and that was reflected in that print. We saw in the way it was broken down the biggest increase was in Hybrid ARMS, which are not -- which are most rate-sensitive. So I expect those to level off there. So I wouldn't expect to see much more.

Then again, I wouldn't expect prepayments on the rest of the book to increase very much. I think I mentioned the capacity constraints within the industry are really in terms of the types of bonds that we like, we really think that that actually makes those bonds prepay even slower.

Because as servicers and originators are full they're going to put the most profitable loans at the top of the queue. And loans like loan balance loans and things like that tend to be less profitable for them to refinance. So we would expect things to remain pretty stable going forward.

Okay. And then just to follow up on the CMBS question. Can you guys comment on what you saw in terms of the availability in terms of repo for the CMBS throughout the quarter and today?

Yes, repo terms were pretty much unchanged during the quarter. We still have average haircuts are around 20% and financing rates have increased a little bit given the volatility in the market. So approximately -- anywhere from 115 to 150 in terms of financing rates. But we didn't see any real big changes during the quarter.

Okay, that's helpful. Thank you.

Douglas Harter, Credit Suisse.

Just to clarify on the swaps, are there any more forward starting swaps that haven't started yet?

Yes, Doug, this is Don. We had -- I think we had one that started right at the beginning of Q4, but that was it.

Okay, got it. And then just on the PPIP -- on the PPIP equity investment. Can you talk about the return expectation and how much more and how the cash flows might look from that as well versus what we'll see on returns?

Yes. The new investment, the nice thing about it is we're getting some of the money that we have committed to the Invesco Mortgage Recovery Fund put to work. The expected returns are in the mid-teens, so I'd say in the 15% to 16% range. It will also be, as Don was saying, an equity investment. So the value of that will flow through earnings.

And how will the cash flows will, will they sort of be backdated and will sort of the accounting of that be comparable?

I think the accounting is going to be comparable on that. I mean, basically what we do on that, Doug, is we do get periodic distributions from the fund and we accrue for what we expect the returns to be on a quarterly basis. And there's a little bit of a lag for when the information comes through.

So I think if you're looking at it and trying to forecast forward, if you were to look it would still be in the mid-teens range on the return, that's probably what it will be. I think if you look at the third quarter, that was more of an anomaly and kind of a catch up than anything else. But we should see that mid-teens estimation coming through in the future.

Yes, well, back to the PPIP number with the $3 million loss essentially there. Our PPIP fund has outperformed really all the other PPIP funds. So in a relatively sense it's done well. But with non-agency prices down across the board all those funds are down and it's less their income.

And if you could just -- I know you commented on the CMBS side, but if you could comment on how non-agency RMBS performed in October.

Non-agency in October? Yes, I would say again broadly unchanged, maybe down just a little bit. But most of the senior bonds we've seen have been unchanged. And financing terms have remained, again, basically unchanged. I think on average about 20% haircuts and about 150 basis points of funding cost.

Great, thank you.

Daniel Furtado, Jefferies.

On the CMO portfolio, this portfolio has doubled twice in the last two quarters. Can you help us understand kind of what you're targeting there and the reason for the growth in that portfolio?

Which portfolio?

The CMO.

So, non-agency you mean?

No -- I'm not sure if it's -- do you classify that as non-agency -- MBS CMO, was it about 150 -- yes, the non-agency, exactly.

Well, on the agency side we always -- those are just the choices between specified pools and CMOs. And sometimes we can find collateral characteristics embedded in CMOs cheaper than we can in agencies. So it's not really -- we don't really target CMOs as an asset class. It's more of just a different way to buy the same collateral.

Got you. So nothing strategic there, it's just more opportunistic --?

No, it's just kind of how it's labeled. I mean it's basically the same sort of process and the same sort of characteristics that we look for.

Great, and then talking on the senior -- those front pay re-REMICs, what is the -- on the financing there, what's the rate in haircut and how does that compare to a more plain vanilla non-agency bond?

Yes, I would say the haircuts on the senior re-REMICs and I think anywhere from 12.5% to up to 20% which I mean. So I think that's the range depending on whether it's rated and whether depending on the level of enhancement. The rates, the term on those is anywhere from 85 to call it 81.25, somewhere in that range.

On the non-re-REMIC side it's a much wider range of, obviously given the different types of bonds that are out there, so really your results vary depending on the actual bond. But I would say broadly anywhere from 25 to 35 haircut and LIBOR plus 125 to -- it got close to 175 in terms of that. So if that's it. The asset quality really is the driver of terms and haircuts on those.

And are these all -- thank you, thank you, John. Are these or on the run securities or were these newly issued senior re-REMICs? I know it probably varies, but --.

Yes, it varies. I would think most of them are newly issued.

And then my last question is more of a modeling thing here, but your restricted cash account, what's in there and how should we think about the movement of that account vis-a-vis either securities prices and/or swap rates moving forward?

What's in there basically mostly relates to the either the repo or swap. I think the majority of the restricted cash relates to the repos. And again, that's going to fluctuate based on the time of the month and win factors come in and so forth and when we have to post additional cash and so forth. It's hard to say how you'd model it.

We generally try to keep our cash, restricted cash to a minimal level and try to keep it in as many earning assets as we can. So it's hard to give a definitive answer on how you should model that. I mean if you look back over time it's historically run somewhere in the level we're at right now or about half of that. But again, it's hard to help you model that much more clear than that.

There is some fungibility to that. I mean we could replace the restricted cash with agency mortgages, and that's something we look at.

A lot of it has to do with timing; sometimes it's just the time of the month when we had to post the collateral whether it's cash or assets.

Great. Thanks a lot for your time, I appreciate it.

Mike Widner, Stifel Nicolaus.

Most of my questions have been answered. I just wonder if you could talk a little bit about how you're thinking about leverage now and going forward and whether the volatility in the environment changes your view of putting on leverage or at least allocating across sectors and that sort of thing.

Sure. One thing that we really focused on there is asset quality and lower volatility prices. So it kind of feeds into moving into more senior re-REMICs, better CMBS collateral, we showed 10 of the lower price volatility that we have relative to what people might expect. We've kept leverage in the ranges that we've talked about and manage essentially our cash and unencumbered to manage that margin.

We have a really high monthly cash flow that we can use and a lot of excess repo capacity. And one thing with that monthly cash flow is the slow and relatively stable pre-paids we're seeing. So you put all that together, we're comfortable where we are.

Okay. And I think it's just one other one. You show in your presentation the relationship between your CMBX values and the CMBX index. Any of the indices out there for the RMBS side work at all for that side whether it's a PrimeX or I'm not sure the ABX is going to be all that representative, but anything comparable over there that we might look at?

Yes, there is PrimeX, which is the main non-agency index. But that has been in some ways similar to CMBS in that it's been used by a lot of macro players to express bigger macro views on things. So people looking for the next big subprime trade to short something and it seems like PrimeX has really whipped around.

I mean the volatility of that index has been just many times higher than the volatility of things like the types of bonds we own within RMBS, especially the senior re-REMICs where price volatility has been extremely low. And you see PrimeX is moving multiple points a day typically on bigger headline news and things like that.

So that one I think is a little bit more difficult. You saw the same thing in CMBX. I mean, a lot of the reason CMBX has been moving around a lot too based on macro -- bigger macro things rather than fundamentals certainly.

Got you.

I think in short it would be a bigger difference you know if you looked at that. I mean it would look more dramatic than our CMBS versus CMBX. Our non-agency prices are way less volatile than PrimeX.

Than PrimeX.

Got you. And so just one last one if I go back to the leverage question. As we think about what to expect from you guys going forward, I guess there's two ways to think about what happens to your leverage. The one way is that you feel comfortable about the environment and what you're putting on so you elect to take leverage higher.

Then the other side of it is the market changes, your book value goes down and therefore holding the same assets your leverage just looks higher. It looks to me like this quarter is a combination of the two, obviously the book value suffered and you grew share count, but your share count increased much more than your -- in percentage terms more than your actual asset base.

So how should we think about those too going forward? Is it something -- if we see a recovery in book value would we expect to see a commensurate increase in asset size? Or is it more just you're comfortable with the assets being where they are and you're going to -- leverage is going to go where it goes based on what happens to book?

Yes, Mike, you bring up an excellent point I mean if you were to look at the negative equity associated with the decline in book value and you just took that to zero, that's basically one turn of leverage right there. So probably a good way to look at it is we're comfortable with where we're running the leverage on the portfolio based on how we got it allocated.

Again, that change in book value -- again, all things being equal, if that were to start improving and so forth you'd probably see the leverage coming down a little because, again, we're comfortable with how we lever the portfolio the way it is. So I think that's probably the way to look at it.

All right, great. Thanks, guys.

Jason Weaver, Sterne, Agee.

First of all, in your presentation where you talk about your risk to the enhancements to the HARP program, you mentioned that about 75% of the agency portfolio was originated after June of '09. What can you tell me about the prepayment risk -- the rate driven prepayment risk of that -- of that portion of the portfolio?

I don't have that broken out exactly like that. But I have our breakout of our overall agency book. And the way that works is approximately -- just over 40% are in loan balance pools, investor pools are about 15%, then various other stories like geography, credit type stories are another call it 13% or 14%. So that's about 70% of the book and then the rest of it is in either hybrids or bonds that are very well seasoned.

So I mean there's very few, I mean if any. The hybrids are the only part of the book that really don't have some sort of prepayment protection. And then the hybrids, that is much more rate driven and I think that's what we saw in the pickup in the print that we saw in October for September pre pays, the increase in our prepayment was largely driven by the hybrid side.

That's helpful. And second, just turning to the non-agency side of the business. I wonder if you could talk about the underlying credit quality surrounding the senior re-REMICs and the prime collocation.

Yes, the senior re-REMICs tend to have between 30% and 40% credit enhancement.

In terms of underlying fundamentals, we have not seen any market change in delinquency trends or severities. And we're really seeing pretty much what we've underwritten for occur. We have seen a little bit of slowing in pre pays, we may see a little pickup here just with rates down. But over the course of the last six months there has been a little slowing in pre-payments in the non-agency book.

Yes, another way to look at that is the OTTI number on that part of the portfolio, which again for the quarter remained at zero. So the cash flows are performing exactly in line with how we expected them to.

Okay, thank you very much.

Joel Houck, Wells Fargo.

Just a question on page 7, you say you've got 77% of the agency repo hedged. I guess maybe you could articulate the Company's philosophy on hedging given that all the macroeconomic signs point to a deflationary deleveraging environment and the Fed itself has said they're not going to raise rates for at least a couple years. This is relatively high versus pure agency play. I'm just kind of curious of the thoughts of management on how you go about hedging the agency book and your thoughts going forward?

Sure. I mean we look at that versus agencies; we also look at it versus our total repo. We mentioned we have a large amount of us senior re-REMICs that are high dollar priced bonds that probably will be -- interest-rate sensitive over time. We look at -- if you look at 77% it sounds like a high number, we have brought that number down considerably. But we're looking at the entirety of the repo as well.

Yes, if I can add, Joel, one of the things that we did with the last capital raise, we indicated one of the reasons for doing that was also to allow us to reduce our hedge ratio because, again, the things -- the macro environment had changed and the Fed's policy to keep rates low for a period of time.

So, if you think about it this number was more a little north of 90%, we brought it down to 77% by not adding an additional -- any additional hedges and growing the portfolio. Also when you look at the overall book now our total repo is probably at around 55% hedged. So that number has come down as well.

So is it -- should we include the senior re-REMIC and the repo on that in the ratio? Is that the better way to look at it?

I think it's better to look at it -- we're hedging our entire book trying to keep our duration gap around that one-year time frame. From an accounting standpoint and so forth we put them and designate them as to the agency book. But we really look at it on the entire book when we're doing it. So we're looking at the entire book hedging at about 55%.

Okay, thanks, guys.

Ken Bruce, Bank of America.

Thanks, good morning. Appreciate your comments this morning. My question relates to the agency part of the portfolio in particular. We've seen a number of mortgage REITs that have had some earnings headwinds directly attributable to the prepay expectations, increasing premium in the organization.

And I was hoping you might be able to discuss some of the dynamic on the P&L as it relates to whether it was model driven increases, premium amortization. Clearly the CPRs on the portfolio itself look very contained, so I'm just looking for a little bit of detail on what may be impacting the quarter on premium amortization, please.

Yes, Ken, when you look at the yields you can see that our yields went -- were really basically unchanged on the portfolio. So 3.3% to 3.2%, so it's pretty much in line with what we expected. As John indicated, the CPRs in the portfolio have been very well contained and we really haven't seen any significant increase in the amortization of the premiums.

So again, that whole low CPR is driving that number and we've been consistently low over the last couple of years as we've always stuck to those prepayment protected stories. So we really haven't seen any significant increase in the prepayment speeds and that's reflected in the overall yield on the agency book.

Okay, thank you. And then as it relates to leverage on agency RMBS, what's the leverage that you're running on that particular book? I know you balance it out and because agency repo is less expensive it helps the overall cost of funds.

But what's the leverage on that particular part of the portfolio and how does that affect the hedge ratios you were talking about earlier on the last question? Is there any interaction there just with the amount of leverage you're running on that particular part of the portfolio?

Yes, Ken, we reported -- there's another slide actually that shows that particular coverage and it's -- if you look at the overall agency leverage it's down to 9.3, down slightly from 9.5 times. And again, as we look at the hedging strategy it's in the entirety of our overall book.

But again, as we've indicated, we're not in a position at this point that we feel we need to take the hedging up at all. We're very comfortable with the level that it's at. If anything we'll probably -- as we grow the book we'll probably reduce that hedging a little bit further as we evaluate what the Fed is going to do in the future.

What might be the target range just based on what you see today?

Probably the range we're at right now is where we'd be unless we significantly grow the portfolio. So I wouldn't expect it to change a whole lot from where we're at right now.

Okay, thank you.

(Operator Instructions). Gabe Poggi, FBR.

Two quick questions. One, can you remind me of the timing of your capital allocation from the August capital raise?

Richard King The capital raise was in mid-August and are you saying how long it took to get ramped up?

Yes, when did you get the money out the door?

We put on the agencies relatively quickly I think as we outlined one to two weeks. And then we put on the CMBS and RMBS a bit slower and then we held back some capital for the loan transaction that we were talking about. And that didn't occur until nearly quarter end, right around the quarter end.

So I guess if you're looking at it, Gabe, we were probably fully ramped at the end of the quarter, but it took that full time period in order to get there.

Right, that's what I'm getting at. Okay, that's helpful. And then second question, kind of all else being equal what do you guys think are the most attractive opportunities right now kind of among your asset classes?

Yes, I guess, looking at the world right now, I mean agencies to us still look very attractive. We think that given -- especially higher coupon agencies have lagged both treasuries and lower coupon mortgages for that matter. Being able to pick up pre-paid protected pools, the yield pickup on some of that stuff is very high, 50 to 75 basis points versus generic collateral in yield pickup.

So I think that -- those stories are still very good. I think that all the noise surrounding the whole refi.gov discussions, I think that really serves to cheapen up that part of the market quite a bit and I think there's very good values there.

On the credit side I mean we still -- we do feel like moving up in quality in CMBS is the right thing to do, that market is really -- prices have declined enough that you're getting the same yield in AA's that we were seeing in much lower -- a much lower in the coupon stack earlier. So I think that makes that look pretty attractive. And then in non-agencies, re-REMICs have been fairly steady. So I'd say of all the things agencies probably have gotten to -- look best in terms of how they've performed relatively.

Okay, thank you. That's helpful.

At this time we show no further questions.

Okay, thanks, everybody. Talk to you next month -- quarter, excuse me.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you disconnect at this time. Thank you.