Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.
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| Inflation meanwhile has moderated meaningfully in absent a shock, core PCE should benefit from base effects to bring year-over-year measures towards 2.5% in the coming months |
| In November and December, we experienced the inverse of the prior quarter with a sharp rally in rates and strong performance of mortgage related assets, which led to a net book value contribution of $6.74 per share from our Agency Residential Credit and MSR portfolios |
| As David mentioned earlier, 2023 was a year filled with substantial volatility and our team managed the markets admirably, finishing the year strong as demonstrated by our results for the quarter and full year |
| We did have some very good opportunities to put on some long-term trades last year that we benefit from |
| And as we reflect on 2023, we're pleased to have generated a 6% economic return in a year characterized by numerous unforeseen risk events |
| We believe that our performance on the year demonstrates the value of our diversified housing finance model and our disciplined portfolio and risk management |
| So it's a really good position to be in right here, Doug |
| But look at the end of the day here, if you look at our spread shocks, if we do experience spread tightening, we're still going to get very good returns as we saw in the latter half of last quarter, just in terms of the overall model, we are generating a more stable return with less leverage than what a mono-line agency firm would deliver and we feel very good about it |
| And with our unique position in the MSR market as a preferred partner to originators in light of our scale and certainty of capital, we've been able to establish new relationships and expand our footprint |
| But the good news is, is we're able to earn a good return with the current level of leverage |
| We were well-positioned to take advantage of this environment, delivering a 10.1% economic return for the quarter and we out earned our dividend with earnings available for distribution of $0.68 per share |
| So on margin we believe it will be a positive event for our strategy specifically because we are an opportunistic participant at times, so that more to come |
| Now the broader domestic economy remains strong with Q4 GDP at 3.3% the unemployment rate at 3.7% and consumer still exhibiting spending strength |
| In all told, we're constructive on the housing sector should the labor market and the consumer remain resilient and in-line with the soft landing scenario |
| That said, we're optimistic with respect to our outlook for each of our three businesses and we believe that our three complementary fully-scaled strategies should continue to provide Annaly shareholders superior risk adjusted returns, a strong earnings profile and stability across different interest rate and macro environments |
| And with substantial liquidity and prudent leverage, we remain ready to take advantage of opportunities where we believe capital will be most accretive |
| So, we feel really good about it and we would expect to increase capital towards that effort |
| I think, the market share that Mike, has captured as it relates to the Non-QM market, I think it's been impressive |
| So, we do feel good about growing the credit portfolio, primarily through the Onslow Bay channel and we'll look for more opportunities to do so |
| We continue to see strong demand for funding for our Agency and non-Agency security portfolios |
| And furthermore, an earlier end to QT should help stabilize deposits, which along with incremental regulatory clarity should support bank demand |
| Lock volume was robust in the fourth quarter at $2.7 billion a 13% increase quarter-over-quarter despite winter seasonals |
| And we continue to be well-positioned to add MSR with ample warehouse capacity, minimal leverage and a desire to continue to allocate capital to the strategy |
| We'll see how things progress throughout the rest of the year, but we feel good about this quarter |
| Altogether, this portfolio positioning continues to provide increased yields as average yields, ex-PAA, rose again quarter-over-quarter, 18 basis points higher than the prior quarter at 4.64% |
| In our quarter-end, correspondent pipeline was $1.6 billion with strong credit characteristics as demonstrated by 748 FICO and 70% [CLTV] (ph) |
| Onslow Bay continues to be a leader in the residential credit market as we remain the largest non-bank securitizer and second largest overall over the past two years |
| We do expect EAD to be contextual with the dividend, which we feel good about |
| Annaly was able to capitalize on this significant supply and we were the fifth largest buyer in the market, on-boarding $42 billion in principal balance throughout the year |
| Now looking at the housing sector, home prices outperform the market's expectations over the last couple of years, despite mortgage rates reaching 20-year highs |
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| So, both November and December month ends, we did have a little bit of pressure in financing markets, which suggests that balance sheet assets might be a little bit heavy and that's what led to a lot of the swap spread tightening that we experienced and for example, in the very front end of the yield curve at the two year level, two year rate, we got to negative 21 basis points on swap spreads versus treasury, so versus SOPR |
| I think if you look at TBA, it's pricing in the loan size that new production is, the new production loan size has gone up almost $75,000 over the last year or so and is now running at around $450,000 so these pools are likely to have very steep S curve and very poor convexity profile |
| Housing activity remains subdued, although we have seen modest signs of an uptick in demand following the recent decline in mortgage rates |
| Now to wrap up before handing off to Serena, I wanted to note that as always we're cognizant of the risks on the horizon and we remain prepared for additional market turbulence and vigilant as the operating environment evolves |
| And as we begin 2024 with the Fed's pivot to a more neutral monetary policy, the distribution of future rate pass has narrowed, which has resulted in a decline in implied volatility |
| Now a second factor leading to the decline in yields in the fourth quarter is this change in debt issuance dynamics as the treasury chose to issue incremental supply in the front-end of the yield curve, taking advantage of the record amount of cash in money market funds while exerting less pressure on longer term yields |
| As noted above, our swaps impact on the cost of funds further normalized due to the maturity of specific contracts, resulting in the net interest component of interest rate swaps declining by $15 million which negatively impacted our cost of funds by approximately four basis points |
| Despite this increase our total economic interest expense was only up marginally at $665 million compared to $652 million in the prior quarter, primarily due to the decrease in average repo balances from $66 billion to $62 billion |
| So, we're a little bit cautious here, but that could change |
| And it is as you make the point I realized that one of the things that shifted not only is where you are in coupon, but the percentage of generics, to your point also went down |
| Now as it relates to the broader CRE market, yes, there's certainly some isolated risks out there |
| So, we've softened a bit since then, but nothing to write home about |
| In addition, we have the lowest delinquency rates across the 10 largest Non-QM issuers |
| So long story short, we don't have exposure and we're thankful of that, and we think this will be a relatively muted event in the market, but it is some factors that need to be worked through at the bank level |
| Now as all are aware, fixed income markets exhibited considerable volatility in the fourth quarter, as evidenced by the 10-year treasury trading in a 120 basis point range peaking at 5% mid-October before rallying throughout November and December |
| You lowered your return assumptions across your strategies in the presentation |
| And term was the phrase I was struggling to find at 6:30 in the morning, I apologize |
| We do still think that swap spreads are on the tight side particularly even out the curve with 10-year swaps at negative 36 basis points that to us looks a little bit tight |
| Now those returns are a little bit lower because we do not material amounts of leverage on that strategy at this moment |
| Our repo strategy is consistent with prior quarters and our Q4 reported weighted average repo days were 44 days down from 52 days in Q3 due to the roll down of longer term trades completed in prior quarters |
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