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Edited Transcript of EARN earnings conference call or presentation 3-Aug-18 3:00pm GMT

Q2 2018 Ellington Residential Mortgage REIT Earnings Call

Connecticut Aug 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Ellington Residential Mortgage REIT earnings conference call or presentation Friday, August 3, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher M. Smernoff

Ellington Residential Mortgage REIT - CFO

* Jason Frank

Ellington Residential Mortgage REIT - Corporate Counsel & Secretary

* Laurence Eric Penn

Ellington Residential Mortgage REIT - President, CEO & Trustee

* Mark Ira Tecotzky

Ellington Residential Mortgage REIT - Co-CIO

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Conference Call Participants

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* Joshua Hill Bolton

Crédit Suisse AG, Research Division - Research Analyst

* Trevor John Cranston

JMP Securities LLC, Research Division - Director and Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage REIT 2018 Second Quarter Financial Results Conference Call. Today's call is being recorded. (Operator Instructions)

It is now my pleasure to turn the floor over to Jason Frank, Corporate Counsel and Security (sic) [Secretary]. Sir, you may begin.

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Jason Frank, Ellington Residential Mortgage REIT - Corporate Counsel & Secretary [2]

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Thanks. Before we start, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature. As described under Item 1A of our annual report on Form 10-K filed on March 14, 2018, forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of the date of this call, and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I have on the call with me today Larry Penn, Chief Executive Officer of Ellington Residential; Mark Tecotzky, our Co-Chief Investment Officer; and Chris Smernoff, our Chief Financial Officer.

As described in our earnings press release, our second quarter earnings conference call presentation is available on our website, earnreit.com. Management's prepared remarks will track the presentation. Please turn to Slide 3 to follow along.

As a reminder, during this call, we'll sometimes refer to Ellington Residential by its NYSE ticker E-A-R-N or EARN for short.

With that, I will now turn the call over to Larry.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [3]

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Thanks, Jay. It's our pleasure to speak with our shareholders this morning as we release our second quarter results. As always, we appreciate your taking the time to participate on the call today. Our prepared remarks today will follow the earnings presentation that we posted on our website last night.

Please turn to Slide 3. The second quarter of 2018 saw the extreme equity volatility of the first quarter subside, but the yield curve flattening continued. During the first part of the quarter, interest rates continued their recent upward trend with the 10-year U.S. treasury yield rising 37 basis points to an almost 7-year high of 3.11% on May 17. This trend reversed over the next 2 weeks as investors reacted to a possible trade war and political uncertainty in Italy. And by May 29, the 10-year treasury had rallied back almost to where it had started the quarter. This flight to quality was short-lived, however, with the 10-year treasury finishing the quarter 12 basis points higher overall. The spread between the 2-year treasury yield and the 10-year treasury yield tightened another 14 basis points over the course of the quarter. The yield curve has lately been the flattest it's been since 2007 when it actually inverted during the early part of that year.

On Slide 3, you can see the persistent quarter-over-quarter flattening. The yield curve has flattened for 6 consecutive quarters now, 5 of which are shown on this page. It's been a bear market flattening with the 2-year up 127 basis points over these 5 quarters and the 10-year up 47 basis points. While bear market flattening may put downward pressure on our net interest margin, we believe that our success is not so dependent on the shape of the yield curve or the absolute level of interest rates. Because of our portfolio management strategy, we trade actively, hedge along the entire yield curve and hedge using significant TBA short positions.

As you can also see on Slide 3, the higher interest rates caused Agency RMBS prices to decline again during the quarter, but EARN's book value is stable as solid net carry in our portfolio and gains on our interest rate hedges more than offset the asset price declines.

Turning now to Slide 4. EARN had net income of $0.14 per share and adjusted core earnings of $0.36 per share during the second quarter. The company bought back approximately another 1% of its total shares outstanding at prices which were quite accretive to book value per share. And I also bought EARN shares in the open market for my personal account.

Our economic return for the quarter was 1.2%, and while the first half of the year was a tough one, Ellington Residential again has the highest year-to-date economic return of all the Agency mortgage REITs. The vast majority of our holdings continue to be in Agency RMBS with a small sleeve invested opportunistically in non-Agency RMBS.

Based on yesterday's closing price of $11.17, our annualized dividend yield is 13.2%. At quarter end, we had net mortgage assets to equity ratio of 7.4, which is higher than where we've been over the past few years. Despite the ongoing technical drag from Fed tapering, we believe that Agency RMBS offer attractive relative value today.

Prepayment fundamentals are favorable, and as you can see turning to Slide 5, Agency RMBS yield spreads remain near their 2-year widest levels, in contrast to many credit sectors where spreads remain near their 2-year tightest levels. As a result, after having covered a significant portion of our TBA short position in March in response to the market selloff, we continue to keep our net mortgage exposure relatively high. We'll follow the same format on the call today as we have in the past.

First, our CFO, Chris Smernoff, will run through our financial results. Then Mark Tecotzky will discuss how the residential mortgage-backed securities market performed over the course of the quarter, how we positioned our portfolio and what our market outlook is. And finally, I'll follow with closing remarks, and then we'll open the floor up to questions.

Over to you, Chris.

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Christopher M. Smernoff, Ellington Residential Mortgage REIT - CFO [4]

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Thank you, Larry, and good morning, everyone. Please turn to Slide 6 for a summary of EARN's financial results.

For the quarter ended June 30, 2018, we generated core earnings of $5.1 million or $0.40 per share, broken down as follows: total net interest income of $6.4 million plus total other gains of $131,000 plus total expenses of $1.4 million. By comparison, we generated core earnings of $4.3 million or $0.32 per share for the quarter ended March 31, 2018.

Our core earnings include the impact of a catch-up premium amortization adjustment, which, in the second quarter, increased core earnings by approximately $480,000 or $0.04 per share. Excluding the catch-up premium amortization adjustment, we generated adjusted core earnings of $0.36 per share and $0.34 per share in the current and prior quarters, respectively.

With Agency RMBS prices continuing to decline during the quarter, we had net realized and unrealized losses on our RMBS assets of $10.2 million. These losses were partially offset by net realized and unrealized gains on our interest rate hedges of $6.8 million, and EARN had net income of $1.8 million or $0.14 per share as compared to a net loss of $4 million for the quarter ended March 31, 2018.

Note that net realized and unrealized gains from our interest rate hedges exclude the net periodic costs associated with our interest rate swaps since they are included as a component of core earnings.

Our results this quarter were dampened somewhat by strong TBA dollar rolls and muted prepayments, which caused TBAs to outperform specified pools. Overall, the Agency strategy generated gross income of $3 million or $0.24 per share.

Meanwhile, our non-Agency RMBS portfolio continue to perform well, generating gross income of approximately $200,000 or $0.02 per share. Despite further flattening of the yield curve, our net interest margin actually increased quarter-over-quarter, which in turn drove the increase in our adjusted core earnings per share.

During the current quarter, our net interest margin, adjusted to exclude the impact of catch-up premium amortization, was 1.17% or 8 basis points higher than the prior quarter. The average yield on our portfolio, also adjusted to exclude the impact of catch-up premium amortization, increased 13 basis points to 3.15% while our cost of funds increased 5 basis points to 1.98%.

The main driver of the increase in our cost of funds was our repo borrowing rates, which rose as LIBOR increased during the quarter. With Agency yield spreads near their widest levels in the last 2 years, we continue to add new pools at higher yield levels, which should in turn be supportive of our net interest margin.

As you can also see on Slide 6, our annualized operating expense ratio for the quarter decreased slightly to 3.22% from 3.26%. Lower expenses for the quarter were mostly offset by our lower average equity base. At our current equity base, we project our going-forward annualized expense ratio to continue to be about 3.2%. At the end of the second quarter, we had total equity of $174.2 million or book value per share of $13.70 as compared to $178.3 million or $13.90 per share at the end of the prior quarter.

As Larry mentioned, our economic return for the second quarter was 1.2% or 5% annualized.

Please turn to Slide 7, which is a summary of our portfolio holdings.

Our overall RMBS portfolio decreased by 3.1% to $1.58 billion as of June 30, 2018, as compared to $1.631 billion as of March 31, 2018, and our debt-to-equity ratio declined slightly to 8.8:1 as of June 30 from 8.9:1 as of March 31.

Next, turning to Slide 8. You can see information regarding our effective mortgage exposure, which is the aggregate market value of our RMBS holdings, including our net short TBA position. At June 30, we had net long mortgage -- sorry, net long exposure to RMBS of $1.285 billion, which translates to a net mortgage assets-to-equity ratio of 7.4:1.

Last quarter, we had net long exposure to RMBS of $1.387 billion and a net mortgage assets-to-equity ratio of 7.8:1. So our net leverage just declined slightly from last quarter, but it is still meaningfully higher than at year-end when our ratio was 5.7:1.

Please turn to Slide 9. During the quarter, our interest rate hedging portfolio continue to consist predominantly of interest rate swaps and short positions in TBAs and to a lesser extent, short positions in U.S. Treasury securities and future. In our hedging portfolio, the relative proportion based on 10-year equivalents of short positions in TBAs increased quarter-over-quarter relative to the other interest rate hedges.

As you can see in the chart on the left, TBAs represented 25.1% of our hedging portfolio at the end of the second quarter as compared to 19.5% at the end of the prior quarter in the chart on the right. But this was still much lower than at year-end when TBAs represented over 40% of our interest rate hedges.

For the quarter, we repurchased 115,800 common shares at an average price per share of $11.01 and total cost of $1.3 million and at an average discount to book value of 21%. These repurchases were accretive to book value by $0.03 per share.

I would now like to turn the presentation over to Mark.

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [5]

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Thank you, Chris. Compared to Q1, the second quarter was fairly uneventful. We posted a solid economic return, largely supported by the relatively high yield of Agency MBS compared to swaps and treasuries.

A few important headwinds and tailwinds define the Agency MBS investment landscape for the quarter, and we think these dynamics will continue to frame the opportunity set through the end of the year. On balance, we think it is a favorable environment.

First, the tailwinds. A big one is shown on Slide 10. The financing market is very favorable, much more favorable than it's been in the past 5 years. 3-month repo rates have settled in 10 to 20 basis points below 3-month LIBOR.

Here, we show the time series. This spread is so important because you reduce our hedging cost by the difference, and it directly adds to our net interest margin. Remember, on our interest rate swaps, which are our primary hedging instrument, we received 3-month LIBOR on the floating leg and pay out a fixed leg. Then we turn right around and pay out our repo borrowing expense to our lenders. Historically, we were lucky if the difference between 3 months -- between the 3-month repo rate and 3-month LIBOR netted out to 0. Now we're pocketing 10 to 20 basis points.

This dynamic means that for leveraged investors, mortgages are effectively 10 to 20 basis points wider in spread. There has been a lot of concern about how a flatter yield curve affects core earnings. For EARN, on the portion of our portfolio that hedge with swaps, changes in the LIBOR leg we receive on our swaps largely cancels out changes in our repo cost, and that dynamic neutralizes much of the impact of a flatter yield curve. Generally speaking, the biggest impact of a flatter yield curve is that running a big positive duration gap doesn't help your core earnings much. But running a big duration gap was never a risk return trade-off we liked as a mechanism for driving earnings. So while that may affect other companies a lot, it doesn't impact EARN nearly as much.

Another consequence of the flatter yield curve is that dealers are doing fewer new issue CMO securitizations. Because of the flatter yield curve, the shorter CMO tranches, typically purchased by commercial banks, have a much smaller yield pickup versus shorter-term treasuries. Since new issue CMO securitizations use MBS as their collateral, the MBS market loses what is usually a big chunk of demand. So while it doesn't necessarily affect us as much directly, the flatter yield curve does factor into our assessment of the relative value of mortgages because we know that there are other investors that find MBS less attractive in a flatter yield curve environment.

Please turn to Slide 11. The second big tailwind is that right now, we don't have to take as much prepayment risks because most of our -- most of the Agency pools now are close to par. As a result, our core earnings are less affected by prepayment uncertainty. This gives us much more confidence in our ability to capture NIM. With lower MBS dollar prices, investing is not as model-driven as it used to be and is less impacted by any GSE policy changes that can increase prepayment response.

Tailwind number three is that the absolute level of prepayments are very low right now. Even high-coupon MBS like 5% are barely paying 20 CPR. Because of these slow prepayment speeds, the cost of prepayment protection is much cheaper than it used to be. While we believe technological changes and credit box extension -- expansion will eventually make Agency MBS more responsive to refinance incentive in the future, we can easily and cheaply protect ourselves from that possibility by keeping our portfolio in predominantly prepayment-protected pools now.

Mortgages are just behaving a lot more like corporate funds than they used to. That, coupled with prices near par, make the NIM more robust.

Now for the headwinds. First is Fed balance sheet reduction. The Fed is not replacing a portion of the MBS net portfolio that pay off each month. In Q3, they are net reducing by $16 billion per month. That's a big number. Another MBS investors have to come up with the capital. The mechanism by which this is happening is that when a loan in the Fed's portfolio pays off from a refinancing, the Fed gets that cash, but another investor has to buy the new loan.

This pace of balance sheet reduction is scheduled to hit its maximum size of $20 billion per month in Q4, and this persistent technical drag should keep MBS yield spreads wide for a while. In addition, any widening of corporate spreads has a spillover effect on mortgage spreads as we saw in Q1 when wider corporate spreads put pressure on MBS.

So while MBS yield spreads may seem wide by some measures, and we have increased our mortgage exposure this year, we have the ability to add a lot more mortgage exposure, but we think we might get a better entry point later.

The second big tailwind -- I'm sorry, the second big headwind is that -- is the reduction in central bank support for markets outside the U.S. For years, our own Fed has been reducing support of the U.S. bond market. First, they stop buying, then they started hiking, now they are letting their bond portfolio run off. While the ECB and the BOJ don’t own Agency MBS, we do think that further reduction of European bond purchases from the ECB and a higher 10-year JGB target from the BOJ have the potential to push global interest rates higher.

Mortgages tend to perform much better in a range-bound environment. So we think those selloff of the U.S. 10-year note to 3 1/4 would likely be accompanied by mortgage underperformance.

On balance, we like the mortgage opportunity set now and have increased our mortgage exposure this year accordingly. As we see our mortgages perform this quarter and next when Fed balance sheet reduction is at its peak, that may be an opportunity to buy more, and we could easily add another couple turns of exposure.

We articulate this on Slide 12. Being dynamic and dialing up and down mortgage exposure can be an important source of returns. My portfolio team sees our job as constantly looking to add incremental earnings or keeping a watchful eye in any factors that can drive interest rate volatility.

Now back to Larry.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [6]

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Thanks, Mark. As we move into the second half of the year, I like how Ellington Residential is positioned. We have used the selloff in Agency RMBS to cover a good portion of our TBAs. As we turn over the portfolio and add assets at the current higher yields, we are recharging our net interest margin.

We continue to benefit this year from the consistently wider gap between the lower rates that we pay on our repo borrowings and the higher LIBOR rates that we receive on the floating legs of our interest rate swaps. We've also dialed up our mortgage exposure as RMBS prices have declined. We still believe that the outlook is strong for the specified pool sector where most of our assets are concentrated. We continue to unearth new pockets of mortgage pools that we believe are undervalued and underappreciated. The Fed exclusively purchases Agency pools via TBA contracts, not specified pools. So as the Fed's tapering continues to ramp on schedule, the most important technical support for TBAs will continue to dwindle, making specified pools a better and better choice for most MBS investors.

That said, we also see plenty of reasons for caution. There are the more modest challenges represented by a flattening yield curve and rising interest rates, but the possibility of big shocks is still out there whether from the prospects of trade wars, slowing growth in China or political turmoil in Europe. Additionally, as quantitative easing around the globe continues to give way to quantitative tightening, the market will continue to lose an important stabilizing force.

So in light of those risks, we believe that having a highly liquid portfolio and being disciplined about hedging are as important as ever. We want to be able to stay on the offensive from a portfolio management perspective, especially in choppy periods as volatility typically generates investment opportunities. We're always ready to rotate the portfolio actively when trading opportunities emerge, including to dial up and down our mortgage basis exposure as we see prudent. We like to think of ourselves as an all-weather REIT, able to thrive in a diversity of market environments, and we look forward to the challenges ahead.

And with that, our prepared remarks are concluded. I'll now turn the call to the operator for questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Trevor Cranston of JMP Securities.

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [2]

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So you guys talked a little bit about some of the tailwinds and headwinds you're facing. And obviously, you've increased your net mortgage exposure a little bit this year. Can you talk a little bit more about how you guys are currently thinking about the balance between increasing your NIM today versus having maybe more attractive investment opportunities later this year as quantitative easing is reduced, particularly thinking about how you've taken down the sizes of the TBA position -- the short TBA position this year, which would obviously protect against incremental spread widening if that does occur, but doing so increases the NIM obviously in near term.

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [3]

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Sure. Trevor, it's Mark. I guess the way we think about it is seeing how the market responds to Fed balance sheet reduction when it gets to its peak. So now we're near the peak. Now we're at $16 billion, and the market absorbed that well in July. Mortgages performed very well in July. We feel that would be the same pace August and September, and then October will see how things respond to $20 billion. So we're going to get an answer as to how aggressively new capital comes into the mortgage market to take the Fed out of its balance sheet in just a couple months, right? In 2 months, we'll be at maximum Fed reductions. So I don't see a big incentive to add a lot of leverage now at these spreads, given that we're going to clear up some of this uncertainty relatively shortly. But I do think, pullbacks, 5 or 10 basis points pullback are significant enough that we want to capture them. That would be enough if -- as long as your rates aren't at sort of a boundary point. What you typically see with mortgages is when interest rates get to a level the market hasn't seen for a while, mortgages tend to perform poorly. If interest rates are sort of testing the higher end of where they've been for a while, let's say, if you've got to 3.10% or 3.15%, the market gets worried about extension risk. And if you saw, say, rally back below 2.75%, the market gets worried about call risks. So I think if you had a widening and the mortgage -- and 10-year note is sort of in a range where it's been, that would be enough for us. Absent that, I think it pays to wait a little bit and see how things are in Q4, early in Q4.

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [4]

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Got you. That makes sense. And then the second question on the Slide 10, the spread between 3-month LIBOR and repo. Two questions on that. One, I was wondering if you guys could share your thoughts on whether or not you think it's likely to sort of stabilize at the current level. It's obviously coming in a lot from where it peaked, I guess, in April. But sort of where you guys think that will stabilize? And then the second part of the question, if you're able to quantify how much of that spread benefited earnings in the second quarter, that'd be helpful?

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [5]

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So I would say I think it's likely stabilized somewhere in this 10 to 20 base where 3-month repo costs are 10 to 20 basis points below 3-month LIBOR. I think it's likely that we'll stabilize there. And if I had to quantify it, how much of a benefit that is versus what it was like, say, if you go back to 2014, 2015 regime when the 3-month repo costs were consistently 10 basis points over LIBOR, right? Let's say, they average at 20 basis -- 15 basis points below 3-month LIBOR, and they used to be 10 basis points above 3-month LIBOR, that's a swing of 25 basis points per annum and then times the leverage.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [6]

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7 times, let's say.

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [7]

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Yes, so 7 times. So 175 basis points over the course of the year.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [8]

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Yes, of course, some of that's -- some of that, but not all of that is priced into where MBS are trading, right? So there's some section of the market, segment of the market uses leverage, and that increases demand from that sector. So it's a portion of that is priced in to mortgages, but since there's a huge segment of the market that does not use leverage, certainly not all of it's priced in. So a chunk of that is absolutely flowing to the bottom line.

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [9]

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Yes, and the reason why I think it's likely to persist where repo is below 3-month LIBOR is we've also seen a material shift in the composition of our repo counterparties and their individual appetite for repo. It's more coming from the big banks now than it used to, so I think another metric why I think the funding is more stable.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [10]

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Right.

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [11]

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Got it. That make sense. And you guys have always had or often had some treasury positions as part of your hedging. Does this new relationship between LIBOR and repo alter how you think about using treasury shorts versus swaps as a hedging instrument?

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [12]

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Yes, it does. If you think back to, when was it, a year, 1.5 year ago when 10-year swap spreads were negative 17 basis points, and people thought they were going to get much more negative. A lot of people shifted their hedges into primarily treasury base. We chose to stay with a lot of swaps base. We thought there were reasons that swap spreads would widen out, and they have. Yes, no, we definitely -- yes, this -- the big move in 3-month LIBOR relative to repo is definitely a factor for us that gives us a preference towards swap base hedges as opposed to treasury base hedges. We like to diversify, but yes, no. Incrementally, that does pushes more to swaps.

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Operator [13]

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Our next question comes from the line of Doug Harter of Crédit Suisse.

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Joshua Hill Bolton, Crédit Suisse AG, Research Division - Research Analyst [14]

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This is actually Josh on for Doug. Mark, you talked about how you're able to be dynamic with the portfolio, dialing up and down mortgage exposure with -- when the market looks attractive. What level of leverage are you guys comfortable with running the portfolio going forward?

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [15]

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I think we could add 2 turns of leverage definitely.

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Joshua Hill Bolton, Crédit Suisse AG, Research Division - Research Analyst [16]

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By the way...

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [17]

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It can't only be just the shift in hedges, right? It could be further reduction of TBA, further increase of swaps and treasury through treasury futures.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [18]

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It doesn't mean we're repo borrowing, right? All we have to do is buy back our -- more -- now we've already done obviously a chunk of that.

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Mark Ira Tecotzky, Ellington Residential Mortgage REIT - Co-CIO [19]

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Yes.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [20]

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But if you look at Slide 8, if we wanted to dial down, for example, you can see we have a lot of room to dial down by increasing that dark blue, the net short TBA positions, which already dialed down quite a bit, hence dialing up our mortgage exposure. If we wanted to -- all of a sudden, we were cautious on the mortgage base, let's just say that mortgages had a really good month, the latter part of this month, and we wanted to then sort of lock that in a little bit, we could go sell a lot of TBAs. And we've been at times around 50% hedged with TBAs as opposed to now where it's been lately more in the 20-ish -- 20, 25-ish area. So we have a lot of room at this point to dial down our mortgage exposure. If we wanted to, we could do that extremely quickly amidst probably one of the most liquid markets in the world, right, the TBA market, current coupon TBAs.

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Operator [21]

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And we have reached the allotted time for questions and answers today. I would now like to turn the floor back over to Larry for any additional or closing remarks.

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Laurence Eric Penn, Ellington Residential Mortgage REIT - President, CEO & Trustee [22]

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No. I think that will do it, operator. Thank you. Thanks, everyone.

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Operator [23]

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Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.