Dynex Capital (NYSE:DX) held its third-quarter 2023 earnings conference call, during which the company expressed confidence in the investment opportunities presented by historically wide spreads in agency residential mortgage-backed securities (RMBS). Despite the impact of spread widening on the company's book value, Dynex Capital remains committed to generating long-term sustainable returns. The company's management team and board, who own stock in the company, are focused on leveraging these wider spreads for historic returns.
Key takeaways from the call include:
- The company's belief in the stability of hedged agency mortgages as an investment, expecting agency RMBS spreads to trade within the range of 120 to 200 basis points.
- The daily mark-to-market portfolio, which provides significant liquidity and flexibility in managing leverage.
- The positive factors in the mortgage market, such as a steeper yield curve, positive net supply, and deteriorating credit trends, which could potentially drive mortgage spreads tighter in the future.
- The company's active management of its position and adjustments to its hedge position since the quarter's end.
- The acknowledgment of the uncertainty surrounding the duration of technical selling and the factors that could drive spreads tighter.
CEO Byron Boston emphasized the influence of human conflict, global debt, and balance sheet transition on the company's investment strategy. CFO Rob Colligan provided financial updates, including the book value and comprehensive loss for the quarter. President Smriti Popenoe discussed market trends, positioning decisions, and the investment opportunity in agency RMBS.
The company attributes the recent widening of mortgage spreads to technical selling by money managers. However, Dynex Capital remains confident in the quality of its assets and its ability to manage the risk associated with wider spreads increasing leverage. The company also highlighted the resilience of the mortgage asset class, which has survived past crises and remains a liquid option for investors.
During the call, the company reaffirmed its commitment to transparency and disclosure, especially during uncertain market conditions. The management team concluded the call by expressing their preparedness for the evolving market environment and extended gratitude to all participants.
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