And the implications for Dynex, a range-bound environment is really a great environment to earn carry. And then as you guys think about the Fed potentially announcing taper at some point, maybe later in the year, can you share your thoughts around sort of how you think the MBS market is likely to react to that? Question on the portfolio composition and, obviously, the TBA position becoming a larger part of the portfolio. So I always have a saying, which is you can't eat OAS. Look at where we are today. We believe that Dynex Capital represents a compelling investment opportunity. Just can you talk about how wrong the market has been? Trevor Cranston -- JMP Securities -- Analyst. Okay. We also called our higher coupon preferred Series B, further optimizing the right side of the balance sheet. And I think from a macro perspective that the markets will continue to give us opportunities. We would like to give our shareholders more liquidity in our stock. Specifically, declining pay-ups on specified pools, historically low repo rates, and unprecedented dollar roll specialness are unique potential opportunities in our focus. This is a material number that has insulated the company from rising rates and has protected book value from a dramatic rise in short-term rates as the Fed continues to use rate policy in an attempt to tame inflation. Our options-based hedges on the long end of the yield curve performed very well, and we actually booked gains and rebalanced into more future-based hedges to navigate the coming quarters. And you also have incremental demand from banks and other investors. At this point, we're estimating, again, another two to three turns of capacity that offers additional total economic return power of anywhere between 1% to 3%. And I'm going to bring your attention to the line at the top of the panel that says 10-year treasuries. So we're not reckless. We've always thought of those as longer duration instruments, and you can see the hedge performance for the first quarter was very good, and that hedge ratio was sort of captured accurately. In todays environment, we have neither. I will tackle financing costs and the inverted yield curve first and then address asset valuations, our spread outlook and expected returns. In terms of where the opportunity is at this point, right, there's opportunity in the 2.5% coupon in -- that's where we see the biggest area here because you can see, for example, New York, only pools have come down substantially. If we funded all our assets in the repo market and had no hedges, our income would suffer in the short-term, but improve in the long-term assuming the markets prediction came true. Dynex has the highest three- and five-year returns, along with the best Sharpe ratio among fifteen peers, comprising agency and hybrid mortgage REITs. The global environment is increasingly complex, with rising global debt, increasing human conflict, rapid technology changes and shifting demographics. The words believe, expect, forecast, anticipate, estimate, project, plan and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. How quickly can we earn that back? Inverted yield curves are unique to periods of significant Fed tightening. Smriti will cover more granular details as well as our views on recent market activity and our outlook for the future in her comments. At quarter-end, leverage was 6.9 times shareholders' equity, and earning assets were $5.2 billion. Most importantly, since this new era in history began in January 2020, we have outperformed our industry and other income-oriented vehicles with a 27.1% total shareholder return as noted on Slide five. The second thing was, from here on out -- we've had a massive steepening in the yield curve. Starting with the markets, please turn to Slide 18. And we're being very opportunistic, which is what you saw in the first quarter. And as Steve mentioned, the second quarter will include some accretive benefits of really good dollar roll levels that we have locked in through June. Stephen J. Benedetti-- Executive Vice President, . Our management team, our Board of Directors, and I are personally committed to investing alongside our shareholders. In terms of mortgage spreads and returns, Agency RMBS has been very well supported by both bank demand and Fed demand coming into this quarter. So its an interesting dynamic that you want to really understand that is happening at the front end of the mortgage market. As discussed last quarter, this does not include the benefit of our hedging activities. Agency RMBS are highly liquid, government guaranteed assets and offer excellent returns. Yes. 2s, I would say, look to us more like duration or curve trade; and 2.5s have more convexity and prepayment risk. Right. And now -- one-month repo rate now is sitting in the mid-teens, 14 basis points. That number is probably closer to $20. And you have one of your best ways to understand and look back at the forward curve, and look at how wrong the market has been this decade. The world is evolving still. Thank you, Rob and good morning everyone. We had a tremendous run just even within the quarter and coming into this quarter on some of those purchases. We will see how long it lasts. We are focused on measuring risk-adjusted returns with an eye to the future and not the past. And so all of these things lead us to say, better have a more neutral kind of position with respect to that. The Company also has investments in securitized single-family residential and commercial mortgage loans originated by the Company from 1992 to 1998. I think that was your last question. So when we look at Slide 18, and we see the negative OAS in the 2% and 2.5% coupons, how do you think investors should square that with the really healthy return that you guys are generating with 7 times leverage? Our nimbleness is extremely important to us and its been extremely valuable especially this decade so far. Alison Griffin - Vice President, Investor Relations. For the quarter, we recorded a comprehensive income of $1.76 per common share, a total economic return of $1.38 per common share or 7.2%, and a core net operating income of $0.46 per common share. We will take our next question from Doug Harter with Credit Suisse. 2022 2022 Annual Report 2023 Proxy Statement 2021 2021 Annual Report 2022 Proxy Statement 2020 2020 Annual Report 2021 Proxy Statement 2019 2019 Annual Report 2020 Proxy Statement 2018 2018 Annual Report MBS performed very well, and our hedges were positioned appropriately for the most. You may proceed. And the existing shares at the time have benefited in all of that. And we look forward to seeing you next quarter during our second-quarter conference call. We anticipate that volatility in the macro economic environment will translate into chances to deploy capital. Steve, do you want to give any technicals around what limitation we may have in terms of dividend? We are building our company for the long-term. Proposals to be considered at the Annual Meeting by holders of Common Stock: 1. Can you just talk a little bit more about the decision to raise capital through the ATM and kind of how you view the tradeoff of near-term dilution versus future returns from that capital? Good morning and thank you for joining us today. Christopher Nolan -- Ladenburg Thalmann -- Analyst. We expect strong MBS performance to continue, supported by these technical factors. Please turn to Page 9. Okay. Got it. We remain prepared for an evolving macroeconomic environment, which we believe will eventually lead to a wider set of investment opportunities. This continues to be a great environment to generate a strong economic return. So, you would see, as you would expect, repo expenses are up. Our total economic return for the year was negative 9.45%. The removal of liquidity has the potential to impact a broad section of the investing landscape. [Operator Instructions] And I would now like to turn the conference over to Alison Griffin, Vice President of Investor Relations. Our team has always operated with great integrity and unwavering commitment to our values and a focus on supporting our community. Great. Good morning, everyone, and thank you, Steve. But I just want to emphasize that when we say this is a great environment, one of the things behind the word great is, what we saw in the first quarter was some intra-quarter volatility that you as an analyst or even other investors may not see unless you're in the mortgage market. Global markets are fragile because of the rapid buildup of debt. On average, I'd say we're -- we -- over the last four or five quarters, if you look back and see, we've operated at a leverage of about 7%, 7.5% -- 7.5 times. It invests in agency and non-agency MBS. With our refinancing costs fixed, the markets are going to continue to give us great opportunities to invest and manage our leverage. This is an evolving environment. Today's call . Hedging positions in the long end and options reflected this view, and this view largely played out over the quarter. Thanks Smriti. Yes. So, look, right now, I think there is levels of cash-out refinancing that are starting to get limited a little bit by the GSE policy. Stewardship. However, we're also very focused on our total return experience. And we will take our next question from Trevor Cranston with JMP Securities. So the balance sheet is actually larger, even though the leverage doesn't seem to have been affected as much. This is a key foundational element of our thinking. We believe it is essential to maintain lower leverage, higher liquidity, a more neutral duration position and a patient disciplined approach to fully capture the value offered when volatility hits. I appreciate that. So we have that on our radar with respect to the ability to sort of lock-in financing rates, but still don't believe that that's necessarily a liquid and flexible enough option for us at this point. And I'll just make the point that even at this lower leverage level, we still expect to exceed -- core EPS to exceed the level of the dividend in the second quarter significantly relative to even the first quarter. And the second piece is just our hedge positioning. Sorry, if I could just get one clarification. Market-beating stocks from our award-winning analyst team. We pay an attractive and consistent monthly dividend that we believe is sustainable. So, that we leads us to that kind of a risk position. And so the nominal carry being offered by TBAs right now are high relative to year-end. And throughout time, there are better probability distributions than we have today for investing money. As such, we are making decisions with these factors in investing your savings with a long-term in mind. Dynex Capital, Inc. ( NYSE: DX) Q4 2022 Earnings Conference Call January 30, 2023 10:00 AM ET Company Participants Alison Griffin - Vice President, Investor Relations Byron Boston - Chief. The Dynex team relied heavily on our deep experience in managing the embedded extension risk in a mortgage-backed security, and we use this tactical expertise to take advantage of the environment. Dynex Capital provides short-term, bridge loan financing through the origination of CMBS loans. Yes. Dynex Capital, Inc. acquires and manages a portfolio of residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), commercial mortgage loans, and other real estate-related investments in the United States. Good morning. I will begin with a review of the markets, our performance and then cover our current macroeconomic view and the outlook. We believe the draining of liquidity has the potential to be a major driver of the repricing of risk in this decade. The words believe, expect, forecast, anticipate, estimate, project, plan and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. So all of that factors in. Alison Griffin - Vice President, Investor Relations. As Smriti will describe, hedging is an important part of how we navigated this inverted yield curve environment. Dynex Capital, Inc. (NYSE:DX) Q2 2022 Earnings Conference Call July 25, 2022 10:00 AM ETCompany Participants. Dynex Capital, Inc. is a real estate investment trust, or REIT, which invests in mortgage loans and securities on a leveraged basis. So the hedging is going to be more of a day-to-day, quarter-to-quarter type thing. You guys mentioned this sort of near-term outlook for spreads, you expect them to be kind of range bound and to remain correlated with other risk assets? I mean you can see in the 3% coupon, there were pay-ups in the 6.6 points above TBA, and these things were trading at $110 price, and they're now substantially lower. So in general, I would say the surprises in spec pools were simply the magnitude of the decline in pay-ups. We think about what can we invest the capital in and when we adjust the all-in cost of capital for dilution in the near-term, are we able to earn that back over time? Turning now to our near-term macroeconomic view and outlook. Great. We believe that this sets us apart and you are seeing evidence of that differentiation in our results. Thank you. Lets now turn to assets. We have been strategically focused on our investment strategy at capital allocation as well as simplifying and enhancing our capital structure. Now, the markets have done an incredible thing here by being very confident that interest rates are going to come down. The most important message I want to leave you and our shareholders. The slide presentation may also be referenced under Quarterly Reports on. As you think about your hedge construction today, it seemed like you guys increased the treasury futures position. But the reality is different. We came into this decade, we believe surprises were highly probable. And I guess just one follow-up on that. So you really have to see two things happen. We are a big proponent of preserving book value and we never like being in a position of losing capital. And we think both of those events are actually quite probable. Right now, we're in a very uncertain economic environment. Our risk and investment strategy are set in this context. Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. And we think that there might be some opportunity there, but believe that develops closer to the second half of the year. With that, I will now turn the call over to Smriti for her comments on the quarter. 10 stocks we . [Operator Instructions] We will take our next question from Bose George with KBW. We have experienced some value degradation in our hedge book so far in 2023 as long-term rates have receded, although the hedge loss has been outpaced by asset gains, which results in our book value increasing to $15.10 to $15.20 as of now. We achieved this during an unprecedented time in the markets. But we're really looking at the coupons and the spec pool areas where specified pool pay-ups have come down substantially, and those are areas where we think that there's value. A last point on financing, the availability of financing remains very strong. Our leverage as of December 31 was 6.9x to common with $6.4 billion in assets. So again, we are trying to limit the exposure to high pay-up pools to be able to cut down on that the pay-up exposure, right. As I stand here today, looking at the investment landscape, I see a favorable investment environment that supports a recovery in book value over time without the need to take excessive risks to recover capital while we continue to generate a solid return for you. And then obviously, the 3% coupon is a very negatively convex coupon as well. So at this point, we feel we can be somewhat patient in looking at that positioning. Dynex Capital, Inc. is an internally managed mREIT that manages a diversified, high-quality, leveraged fixed-income portfolio. In our view, we have plenty of risk on for this environment. I will emphasize, we are not an agency only REIT. Hey. Now, Rob, in terms of just how to how to think through EAD plus, what is more directionally correct. Dynex's purpose is to make lives better through careful stewardship of individuals' savings, providing capital for the financing of homes, and strengthening the communities we serve. And I think the answer to that is yes, I think we actually included a slide in our investor presentation this time, it might be in the appendix that has some of our views on the mortgage market dynamics. Agency RMBS spreads have been highly correlated with risk assets in general and we believe that trend continues in 2023. [Operator Instructions]. For additional information on these factors or risks, please refer to our disclosures filed with the SEC, which may be found on the Dynex website, under Investor Center as well as on the SEC's website. Thank you, Byron and good morning to everyone joining the call today. Pay-ups on higher coupon specified pools came down, right? And then when we think about costs, costs are costs, where is my technology costs, where is the issuance costs, can we generate a return above our costs. Both our interest income and our hedge gains have also ramped up this year. Yes. And this is for like 4.5 to 5. 2.5s have the most negative convexity between the two of those coupons. Lastly, we added $92 million of new capital this quarter via our ATM program. Right. It is, I would say like, I have been in these markets for a long time. With that, it is my pleasure to turn the call over to Byron Boston. As you can see on this chart, MBS OASs were within a range of about fifteen to twenty basis points with even wider ranges when you include intraday volatility. Our current total economic return for the quarter was 7.2% on a quarterly basis, and we have generated a total economic return of 34.8% over the last four quarters, averaging 8% per quarter. Please go ahead. And in that cost of capital and I guess, if you were to think about the $0.28 of dilution, I guess at what points in the quarter were those shares issued? Post-quarter-end, we took some profits on our 30- and 15-year MBS TBA positions. So we're very thoughtful about this. For those of you who are not yet our shareholders, I hope we have made a compelling case for you to join us. Chris, the -- just thinking about the first quarter, I mentioned $36 million in excess economic return over the dividend, some of which is realized and some of which is not realized, and you think about that as potential taxable income. Byron L. Boston-- Chief Executive Officer, Co-Chief Investment Officer. Thank you so much for joining us. We are anticipating that this decade will bring new opportunities and unique challenges. We started this decade at Dynex, believing that surprises would be highly probable and 3 years into it, the surprises continue to come. It has a market capitalization of US$592m, which means it wouldn't have the attention of many institutional investors. One is our macro views from here is that we actually are going to be somewhat range-bound until the next catalyst comes through for a move in the markets, either higher and steeper or lower and flatter. It produces an economic return to support the current level of the dividend. We are investing for the long-term. And then how that affects demand and supply? Chris, this is Byron. And in our opinion, this offers the opportunity to be very strategic and shift between TBA and pools, which is also supported by low repo rates at this point. Now from a macro perspective, we're at a critical inflection point in the global economy as the pandemic evolves in a disparate fashion and the impact of government responses and the vaccine takes hold. I'll now turn the call back to Byron. We saw a phenomenal opportunity to raise capital, so we raised capital. We actually get paid to put a hedge on whether that is a future or a swap. Dynex Capital, Inc. (NYSE:DX) Q1 2021 Earnings Conference Call April 28, 2021 10:00 PM ETCompany Participants. If the company utilize swap instruments instead of futures, EAD would be dramatically different. And the decline in repo rates that we've recently seen has actually made pools more attractive than they were before compared to TBAs. As we disclosed in the proxy, together, we are among the top five shareholders on a percentage basis in our common stock. In our view, these factors have shifted the yardstick by which to measure what is a fair return for the risk environment. Vice President of Investor Relations: Wayne E. Brockwell: Senior Vice President of Portfolio: Jeffrey L. Childress: Vice President and Controller: Latest SEC Filings. I'm extremely pleased with our first-quarter results, which Steve and Smriti will review in more detail in a minute. If the current shape of the yield curve persists, we do expect to have additional hedge gains in 2023. So we have to be ready to rebalance in either direction. So our hedge positioning was in the back end of the yield curve. Date Type Title; And our pool position at this point is mostly in the 4.5% very, very small position in the 5s. Agency RMBS prepayments speeds were 18.4 CPR for the quarter versus 17.1 CPR for Q4, while overall portfolio CPRs, including the CMBS portfolio, were approximately 14 CPR. And we have ample dry powder to take advantage of attractive investment opportunities as they develop. We see this as a favorable investment environment, because its possible to earn hedge returns using leverage of 7x in the low to mid-teens. Every investor in Dynex Capital, Inc. (NYSE:DX) should be aware of the most powerful shareholder groups. Yes, absolutely. Year Range 10.39 - 17.06 Market Cap 680.2069 Mil Volume / Avg 561,334.0 / 956,410.3 Price / Sales 31.38 Price / Book 0.89 Forward Div Yield 12.65% Trailing Div Yield 13.44% Morningstar's Stock. And so over time we are kind of thoughtful about where we purchase our convexity. I mean like the if you look at the forwards on December, in December of 2021, I mean the market would have told you that interest rates will be up at like 50 basis points or 75 basis points at the most, right. As you can see on Page 16, for a 20 basis point tightening and spreads on agency RMBS and a 50 basis points on CMBS IOs, our book value rises by 9% or $1.35. Dynex Capital, Inc. is an internally managed real estate investment trust, or REIT, which invests in mortgage assets on a leveraged basis. We were hedging the back end of the yield curve, and that's where we expected most of the move. When we view returns today in this context, we see the investment environment as continuing to be favorable offering low to mid-teens returns in agency RMBS. $643M Today's Change (0.67%) $0.08 Current Price $12.03 Price as of April 17, 2023, 4:00 p.m. We are thoughtful, ethical, and responsible fiduciary stewards of environmental, social, and financial capital. GLEN ALLEN, Va., July 18, 2022 -- ( BUSINESS WIRE )--Dynex Capital, Inc. (NYSE: DX) (the "Company") announced today that Stephen J. Benedetti, Executive Vice President, Chief Financial Officer,. We believe that this environment calls for liquidity and flexibility. Id like to leave you with the following thoughts. I want to emphasize we do not consider ourselves an agency-only REIT nor we invested in an agency RMBS, because it is the hot thing to do. How long the tightening cycle lasts, how effective it is? Well, let me -- I'm going to let Steve give some of the technicals on the REIT rules. So, we are in that our view on interest rates right now is, you cannot predict, you cannot predict. It becomes then a strategy, as Byron just alluded to. I am simplifying it for you. Just kind of that thought process versus. Dynex Capital, Inc. (NYSE:DX) Q4 2022 Earnings Conference Call January 30, 2023 10:00 AM ET, Alison Griffin - Vice President, Investor Relations, Byron Boston - Chief Executive Officer and Co-Chief Investment Officer, Smriti Popenoe - President and Co-Chief Investment Officer, Rob Colligan - Executive Vice President and Chief Financial Officer. Against a historically difficult backdrop and markets, I take enormous comfort in this relative result. Discounted offers are only available to new members. We continue to have upside potential from dry powder and the ability to deploy capital at accretive levels. We are calling this flat distribution with fat tail for a reason, which is that it is really, really hard to come to a conclusion about inflation, the level of inflation, the level of growth, the exogenous events that could happen. As we explained on last quarter's call, we came into this quarter with a view that a steeper curve was highly probable given vaccine development and deployment, fiscal stimulus, treasury supply, and inflation dynamics. Okay, OK, great. And the dividend. Byron L. Boston -- Chief Executive Officer, Company-Chief Information Officer and Director. We've got flexibility. Dynex is a strong diverse organization, building on a thirty-year vision to create a multi-generational organization that continues to stand the test of time. Nonetheless, Dynex outperformed major fixed income indices and our peer group and we continue to deliver industry leading returns. I want to make another point as we look at the risk position. I know we're like 15 months since the whole pandemic started, but the fact of the matter is, this is still an evolving health crisis, it's still an evolving economic situation. And so we spend time on disciplined preparation for more volatility and surprises, we focus on the data, and we believe we'll have chances to add assets at low double-digit returns just as we did last quarter. Smriti Laxman Popenoe -- President & Company-Chief Officer Information. We haven't yet played in the loan balance space. That would be where they are at the moment. I got a few questions. Just -- I guess, how do you weigh that versus swaps versus options in today's environment? This quarter was unique in providing us the opportunity to raise $128 million in new common equity and invest that capital accretive. We think we can actually manage the asset side of the balance sheet a little bit more flexibly to address any kind of rates up the type of scenario. Okay. And we are looking to maintain the book value over time. That was not one of those times. We are investing our money alongside you. And we had options on the back end of the yield curve, and that's what we were hedging. Although book value is lower, we did not subject our shareholders to large unrecoverable, realized losses in either 2020 or 2022. We firmly believe that we can deliver value to our shareholders across multiple market scenarios, as Smriti will elaborate in her comments. Let me conclude with some final thoughts. Over time, this says, we are concerned with our shareholders savings. It is easy to be beguiled by a return that seems higher than we have seen in the last 8, 10, even 15 years. We say longer term because there is a major difference between the past spread cycles and the one that we are in. Investor Relations. With the growth in the investment portfolio and the continued favorable conditions for the TBA dollar roll market, we expect sequential core net operating income growth for the second quarter versus the first quarter. And what it takes to get us back up there is really wider spreads and better returns. Sure. So just the nominal yield is fifty basis points higher. And so thats kind of what informs our opinion. But given the comments, there's a potentially attractive market opportunity out there, is the thinking to raise more capital? So really, I appreciate the question, Doug. And from here on out, we're just -- our macro view is that the markets and we are in a wait-and-see mode to be able to range-bound trade for the next few quarters until we see real data, and we start to see what the next direction is in terms of how the yield curve will evolve. And finally, just a comment on dollar roll specialness. On the balance sheet, portfolio asset yields and TBA specialness were 12 basis points lower during the quarter, which was partially offset by the benefit from lower borrowing costs, which declined five basis points. So, that was in our numbers for the full quarter. We are in an evolving environment and at a unique transitional period in history. So, yes, we do feel like there is, we are investing capital at levels that are accretive to our shareholders relative to the all-in cost, including what we paid to issue the capital in the fourth quarter. It's a great environment. Rob can take you guys through once again, just like the A plus B plus C plus D on the hedge gains. Performance. Interest rates, mortgage rates specifically were lower during the season and the responsiveness of borrowers to low rates now appears to be really strong. And there are no further questions included at this time. So we have already gotten appreciation on anything that was issued last quarter. Hi, Eric. But we are not ready to go in that same in the same direction per se. As a trader and banker on Wall Street, I learned disciplined processes for risk management.
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