Release Date: April 21, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dynex Capital Inc (DX, Financial) has positioned itself well for a dynamic macro environment by raising capital at attractive terms and preserving liquidity.
- The company has maintained a robust liquidity position, allowing it to remain agile and make strategic decisions from a position of strength.
- Net interest income continues to trend up as new investments with attractive yields are added to the portfolio, while financing costs trend down.
- Dynex Capital Inc (DX) raised $270 million of new capital year-to-date, strengthening its capital position and allowing for growth and scale.
- The company has a disciplined risk management process, focusing on liquidity and leverage, which has helped it navigate recent market volatility effectively.
Negative Points
- The April 2 tariff announcement caused significant market volatility, impacting Dynex Capital Inc (DX)'s book value and creating uncertainty.
- Credit spreads in both investment-grade and high-yield bonds have widened, reflecting increased market risk and uncertainty.
- The company experienced some impact on its book value due to turbulence in the treasury and swap market.
- Expenses were up this quarter due to an accelerated vesting condition for equity compensation, although they are expected to level out over the year.
- The global financial and economic environments are expected to continue their volatile trend, requiring careful management and preparation.
Q & A Highlights
Q: Can you provide more color on repo funding costs and their stability?
A: Terrence Connelly, Chief Investment Officer, explained that repo funding costs have remained remarkably stable, ranging between 15 and 17 basis points over SOFR. Despite some movement in forward SOFRs, the availability in financing markets has been impressive, indicating the system's robustness.
Q: Given the volatility, is there any change in your hedging strategy between treasuries and swaps?
A: Terrence Connelly stated that swaps are a more natural hedge for a mortgage portfolio. The current hedge composition is comfortable, with room for adjustments as opportunities arise, but the current setup is deemed appropriate for the portfolio.
Q: How do you frame the current investing opportunity against historical contexts, considering the steeper curve and wide spreads?
A: Terrence Connelly highlighted that the current environment offers significant ROE potential due to wider spreads and a steeper curve. Diversification across the coupon stack and opportunities in the Agency CMBS market are strategies to manage volatility while capitalizing on positive carry.
Q: How do you think about leverage in this volatile environment, and how does it relate to earning the dividend?
A: Smriti Popenoe, President and Co-Chief Investment Officer, emphasized a cautious approach to leverage, acknowledging the complexity of the global environment. While returns are attractive, the bar to add risk is high, and the company is operating with lower leverage to navigate the current landscape.
Q: How are you preparing for potential changes at the GSEs and foreign selling of MBS?
A: Smriti Popenoe explained that the company is preparing for potential shocks by maintaining liquidity and operating with lower leverage. They are conducting scenario analyses to anticipate market reactions to policy changes and are prepared for adjustments in the event of unexpected announcements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
