Good morning, and welcome to the First Quarter 2024 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, April 26, 2024.

At this time, the company would like to remind the listeners that statements made during today's conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Listeners are cautioned that such forward-looking statements are based on information currently available on the management's good faith, belief with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward-looking statements.

Important factors that could cause such differences are described in the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K.

The company assumes no obligation to update such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. Now I would like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir. .

Thank you, operator, and good morning. I hope everybody has had a chance to download the deck as usual, that will be the centerpiece of today's discussion. So I'll be walking you through the deck. And then at the end of that, we'll have a Q&A session. As usual, I'll just give you a quick rundown of the agenda.

So first thing we'll do is go over our results for the quarter, and we'll talk about the market developments that shape our results and provide our outlook for the future, and then we'll get dig into the details of the portfolio and our hedge position..

So turning to Slide 5. For the first quarter of 2024, our net income was $0.38 versus $52million Q4 of last year. Our book value increased slightly by $0.02 over the last quarter. Total return was 4.18% versus 6.05% in Q4, and the dividend was unchanged for the quarter. .

The average MBS portfolio appears to have declined on Slide 6, but that's somewhat misleading because in the fourth quarter of last year, early in the quarter, we had to delever when rates were peaking, and so that calculation is just a simple average of the beginning and ending so it makes it look like it was higher.

But if you look at where we were at the end of Q4 versus where we were at the end of Q1 was not a meaningful change. Leverage increased slightly from 6.7% to 7%. Speeds increased slightly. That's probably more seasonal and just aging of the portfolio slightly.

And then liquidity, slightly improved over where it was at the end of the fourth quarter, but again, right in the middle of our kind of target range. .

Slide 7 provides just our preliminary balance sheet income statement. We would expect to release our 10-Q sometime today. So you'll get the final numbers. We do not expect these to change. With respect to Slide 8, this is what we call our adjusted economic income. I just kind of like to do 2 things here.

One is just walk you through these numbers on the top of the page and just show you where they come from. And then at the bottom, just show you on a per share basis and make a couple of comments about the dividend. So with respect to the top, the interest income number, that comes right off the balance sheet.

So that's just interesting or the income statement either. That's a GAAP number. It is representative of the number we would report for tax. So if you're thinking in terms of our taxable income and what drives the dividend, that number is representative, although not exactly the same.

We don't calculate interest income slightly different for tax, but again, that's a representative. The next number is just the accretion of premium amortization. It's down slightly this quarter, just reflecting the fact that it's calculated based on beginning of period prices, and they've been marked up at the end of Q4.

So the discount was a little less than it had been. Again, this number is not exactly what we report for tax, but it is representative. The next item is interest expense. That's not only is that a GAAP number, but that's actual dollars paid in interest expense. So that would be the same for tax. .

And then finally, the last 2, the hedge number, that is a very close proxy to what we report for tax. That's basically taking the change in the open interest of our hedge positions and allocating it between the portion that pertains to the current period versus all future periods, and that's similar to the process you would use for tax.

So that number is also representative. And then finally, just expenses, that's just right off the income statement. And that, again, is very close to tax. So that's kind of the long and the short of it. So this number is a very good approximation of what we would call taxable income. It's not exact, but it is at least representative.

And then just on a per share basis, you can see below $0.47 and $50 the last quarter above the dividend. So it appears that we're comfortably earning the dividend.

And then we will reassess as we always do as we move through the year to see if there's a need for an adjustment to the dividend kind of thinking about doing that after the second quarter as of now. So we'll see. But for now, you never know markets can change very dramatically.

So when we think of dividend policy, you also -- you've got to look backward, but you also have to look forward. So we'll be doing that, as I said, in the near future. .

Turning now to market development. The top left is an interesting slide. I want to kind of walk you through this. And this is a Q1 discussion. So the book end dates would be 12/31 and 3/31. And those are the 2 bottom numbers, but we've added these extra 2 just to give you some context. The orange line kind of represents the peak in rates last October.

And if you see what happened between then and the end of the year, we had this strong rally, and we all know why that was. It appeared the Fed was about the pivot and the market rallied. And since then, we've kind of retraced.So the green line is how we were at the end of the quarter. And then the blue line is where we were last Friday.

So we've been retracing the rally since that we saw last November and December. .

And we -- at Orchid did thought that, that rally was overdone in our hedging strategy and positioning reflected that.

And then again, if you look on the bottom, it's just the inversion of the curve, as you can see in the most recent data point last Friday, we are off the lows intending in a steepening direction, but still inverted and still fairly well inverted. .

On to the next slide, this is just the current coupon spread. A couple of comments I want to make. If you look at where we were at the end of the quarter, it was kind of a range that had been in place since the end of really '21, early mid-'22 at least, which is when we were in the tightening cycle, we were kind of at the local lows.

Mortgages did quite well in the first quarter. Since then, we've kind of backed off some, but we're still quite a ways from where we were last fall. So not quite as tight as we were still a long way from the wide. But then on a historical basis, if you look back since this data goes all the way back to 2010, we are still wide by historical standards.

On the bottom left, you just see the absolute price change in these various coupons. These prices, of course, have been normalized to 100 going back to the beginning of the year.

And if you look at where we were at the end of the quarter, they were all down in absolute terms, but most mortgages have done fairly well on a relative basis relative to hedges. Since quarter end, they widened, so they've done an absolute price, but also versus hedges..

With respect to roles, most roles are negative, except for the production coupons, and that's, as you can see, has been the case for quite a long time. Turning to Slide 12 now. This is vol. Obviously, volatility is a very important driver of mortgage performance.

And I just want to point out, if you look at where we were at the end of the year versus the end of the quarter, volatility came off meaningfully. That's very supportive of mortgage performance -- but it's not the only thing that helped. .

During the first quarter, we also are aware that there was quite a bit of inflows into money manager funds, presumably out of equities. And so you've got inflows of cash, banks getting reengaged and all off. So it made for a good quarter. To date, it's going to reverse, but we're still not in a bad place.

And then if you look at where vol is on a very long-term historical basis, again, going back 10 years, it's still elevated. We're well off the local highs, but on a historical basis, it's still elevated. .

Slide 13 is just prepayment activity. It really hasn't changed.

The red line on the top left is the average rate, it's probably up a little bit since then, but it's still very, very elevated, and the refi index is at extremely low levels going all the way back to the '90s with respect to primary secondary spreads still somewhat elevated and still volatile. We still see volatility in there.

That's really driven more just by the originator community and their business decisions and where they want to try to price mortgages. We've had a lot of volatility in rates, and so that somewhat probably is captured in these spreads..

And then this final slide before we move on to the portfolio, I just kind of -- I'll call this food for thought. Just throw this in there. And I think it's worthy of some discussion. I don't want to draw any too strong a conclusion here. But what you see here -- the top line is goes back really to the end of the financial crisis. This is GDP, U.S.

GDP just in dollar terms. So nominal dollar terms, not adjusted for inflation. And as you can see, it's been increasing at an amazingly steady rate up until the pandemic. And it's kind of interesting when you think about all the time and energy spent by economists and market participants passing over all the economic data and policy decisions.

But yet when you look at growth over this very long period of time up until the pandemic was amazingly steady. So that's an interesting point. .

And then point 2 is you can clearly see that it's accelerated since the pandemic and it's also become a little choppier. The red line just represents money supply. That's M2. Most money aggregates are kind of been taboo for quite some time.

They have been no longer really viewed as appropriate measures of looking at economic behavior or performance or forecasting. But when you look at this, there's no question that this -- that M2 very closely tracks the growth of the economy. In fact, it's correlation is essentially one. It's a dollar for dollar increase.

So that's one interesting observation. Another one is we put these lines in here. These are just kind of our trend lines. And as you can see, the red line M2 is clearly above its long-term growth trend.

And I guess I don't know if this is a bit of a stretch, but kind of the relationship between growth and the money supply and the economy, which was so steady for so many years has changed..

Now it's kind of out of filter. So now the money supply has grown much more rapidly in the economy, although the growth rate of the economy has picked up. Now I don't know if it's appropriate. But if you were to say that this growth in the money supply is kind of a function of fiscal spending -- we've had outsized fiscal deficits of late.

There's been deficits, no questioning by the government for years, but they're very much outsized as we speak, starting with the CARES Act in response to COVID and the various follow-on programs and even today when the government in $1.5 billion to $2 trillion deficits. I don't know if this growth in the money supply is purely a function of that.

But at the extent it is, it's interesting to note how this has had an impact on the growth rate..

One thing I think you can draw a conclusion here is that if you go back to the immediate aftermath of the financial crisis, when Chairman Bernanke was the Chairman of the Fed, he would talk -- when he spoke to Congress about monetary policy being basically a commonative as they could. They had the funds rate at 0. They were doing QE.

They pretty much couldn't do anything more fiscal policy was somewhat accommodated, but not that much, but they were at least in line. They were doing the same thing, maybe not as much as the Fed had hoped and there was a sequester back then. But monetary and fiscal policies were more or less in alignment.

If you look at today, monetary policy is very restrictive. .

The Fed has raised rates over 500 basis points. They're doing QT, but fiscal policy coming out of Washington is not in alignment whatsoever. It's very much stimuli. -- huge deficits. So monetary policy and fiscal policy are working at odds and that kind of leads you to think, well, maybe that's why the Fed is not having the success that they had hoped.

Growth is still fairly robust. Inflation is still strong. The labor market is still strong. So anyway, food for thought, I just thought this was an interesting picture, I wanted to throw in here, just for that reason. .

Now moving on to the portfolio and so forth. I kind of want to just set the stage before we get into the details of the portfolio. If you want to understand what happened in this quarter and what we've done, I think you have to understand where we were coming into the year.

And so in the fourth quarter of '23, the Fed had clearly appeared to pivot after we -- not long after we had hit the psychohygen rates, the Chairman, various members of the Fed have spoken pretty openly about interest rate cuts on the horizon.

And so in the market size, the Fed had pivoted the market quickly moved to price in 6 cuts in 2024 and the market rally, we just discussed, we saw that in pictures above. We actually didn't buy that. We thought that a lot of that was overdone..

And it turns out, as we enter 2024, what we've seen in the first quarter is the data has remained quite strong. Inflation has been strong every month so far. Payroll growth is strong. GDP, even though it was reported somewhat low yesterday, a lot of that was because of inventory and trade.

And so I think it's safe to say that the pivot is on hold and knowing it not on hold, but we don't necessarily know when it's going to happen or maybe even if it's going to happen. So that's kind of the background.

So in our minds, what that means is we're kind of looking at a status quo outcome where things don't necessarily change, where monetary policy stays high, rates stay high, and we basically have to continue to exist in this environment for the foreseeable future. And the takeaway from us is that it's not a bad outcome.

Our hedge positions as I mentioned in '23, when the market rallied, we didn't buy into that rally. We thought it was overdone. So we kept our hedges at a very high level..

As a result, we were very adequately hedged coming into this year. And our NIM has been -- not only is it not really decreased, it's actually increased. And so we're basically taking positions now to basically position for this kind of condition existing for some time.

What we did during the quarter, going to the slide here on Slide 16, we continue to increase the average coupon of the portfolio. It was up another 5 basis points. The realized yield on the portfolio increased from $4.71 to $5.03 for the quarter.

And inclusive of our hedge net interest, our economic net interest spread was $2.47 for the quarter versus $2.04 for the last quarter. Now the next slide is really, I think, illustrative of what we've done. So on the bottom right here, you see our portfolio has existed at the end of 2022. .

Now keep in mind at that point in time, a lot of the higher coupons that exist today really didn't exist then. They had been produced, and there were a lot of coupons outstanding even to the left of 3s here. But -- that was the portfolio at the time.

And as you can see, as you move through time, moving to the left at the end of last year and then the end of this quarter, we've continued to migrate the portfolio hiring coupon. .

And the current basically target structure is more of a barbell construction where we have overweight to lower coupons and higher coupons. We may add belly coupons opportunistically over time, but they're not our ideal target holding a long time. So we're trying to increase the exposure. We're trying to build this kind of a barbell.

We are able to use paydowns and/or proceeds from our ATM offering over time. They've been relatively modest, but still a source of funds we can use to do so. And basically, that's kind of the direction we're heading. The belly has been very directional belly. I mean coupons those coupons have been moving with interest rates.

So when we sell off, they tend to perform poorly. .

When we rally, they tend to perform well and we make it the construction using the wins, if you will, of that strategy makes more sense. So now turning to Slide 18, kind of focus more on our funding and hedging side. As I said, we were very aggressive in maintaining our hedges going into the end of the year.

And even with the expansion of funding that we saw over that 2-year period, we've been able to protect, as you see in this graph on the right-hand side, the red line is our cost of funds. The gray line is SOFR and you saw that rapid expansion. But you can see our economic cost of funds has been very flat for some period of time.

That's a result of our hedging strategy. In fact, if you look, the economic cost of funds actually decreased this quarter from 2.67% to $2.56 and the reason that happens is as the market is sold off and its price cuts out of the future. .

So if you think about, for instance, in a swap where you have a paid fixed receipt floating, the fixed rate is very much fixed. You pay a prescribed fixed rate on a notional balance. And so the present value of those cash flows is absolutely known. The floating leg is where you're receiving a floating rate on the same notional balance.

And as the market prices out cuts in the future, the present value of those cash flows on that side become higher just because your projected funding rates in the future are higher.

And so as a result, our NIM has actually expanded in this quarter, and that means that, for instance, -- if we move into the future and the market price is out even more, it will go up. Eventually, if they start to price in hikes, it would go up even more. Of course, if they did actually hype the repo side would actually be higher as well.

But in any event, we can stay in this position for some time, and our NIM appears very, very solid. .

Just moving on to Slide 19. This is more of a bigger picture hedged focus here. But basically, we have 91% of our repo funding is hedged, excluding our TBA shorts and interest rate swaps.

But at the same time, the migration up into higher coupons, lower duration assets in conjunction with our lower coupon positions, which are well hedged, really helps protect our book value as well. And I just want to reemphasize this point in Q4, when we did have the rally we did not extend our duration.

We kept our hedges very high, and that's worked very well for us in Q1 and into Q2. Slide 20 just gives you our hedge positions in greater detail. Our interest rate futures positions are unchanged for the quarter. TBA positions were increased slightly.

We actually added some TBA shorts at the very beginning of this quarter as the market tried to sell off or started to sell off. And then just yesterday, after the number when the markets sold out very much, we actually took that kind of back off. So the position now is at about $400 million short versus $370 million at the end of the quarter.

So we've got a round trip there. It worked very well for the first, whatever 20-odd days of the quarter. But we think we've moved off quite a bit in short time. So we've taken some of that off..

With respect to the swaps we added slightly to our swap positions. Otherwise, the changes there, just the passage of time, some of the swaps that were greater than 5 years are no longer -- longer than 5 last and so peers that have moved. And we did add what is called a dual digital option.

On the bottom right, that is a hedge strategy that basically is kind of binary. We pay a premium. And if certain conditions are met, there has to be 2, you get a very nice payout and those payouts are tied to both the level of rates in the S&P 500.

The idea being that if rates are much higher for longer, that would probably cause the stock market to sell off if both of those conditions are met, we have a very nice payday. .

Now let's just in Slide 21, and this is really what's driving a lot of what we're doing here. So these numbers, we look at on a regular basis. So these are the various coupons and the coupon stack and using yield book, we can project the effective duration convexity and then returns under these different scenarios.

And I want to point out a couple of things. First off, while we look at this very regularly, we also look at empirical or observed results and we factor in both in decision-making. But when you look at the convexity column, if you look at the -- what we call the belly coupons, 5s, 5.5 and 6, very clearly the worst convexity.

And in our world, very negative convexity means very hard to hedge. And so while, for instance, if you look at the lower coupons, that very low negative convexity makes it easy to hedge. And so even if you look at the securities in a rally, you can see they are very great returns.

And the sell-off, it's, of course, equally bad but they're easy to hitch. And so we can use swaps or futures and fairly effectively hedge those. And then in the lack of negative convex and really helps with that process. .

And then when you look at the hydro coupons, again, very low negative convexity, and they do very well in a selloff. And so that's kind of what's driving what we're doing here. We're looking at a situation where we think we could be here for a long time. But if we do move in either direction, this kind of barbell strategy is going to be very effective.

And we don't have to deal with trying to hedge the belly, which can be very expensive and very challenging. So for instance, if you look at some of those belly coupons and a meaningful selloff they could extend and underperform hedges meaningfully. And again, in a big rally, the same thing can happen.

So this construction allows us to position ourselves to do well if nothing changes. -- but at the same time, do pretty well if we move meaningfully in either direction. And so that's kind of what we've focused the strategy on. .

Slide 22, this is just our interest rate shocks, our duration gap. I just want to point out the bottom right 2 numbers there. Those are basically the changes in equity given these plus or minus 50 basis point rate shock. Ideallly you want those numbers as low as possible.

And again, it's only model, so you don't necessarily know that you'll realize that, but we're comfortable with acquisitioning. .

And then Slide 23 is just our speeds for the portfolio. We showed January, February and March as well as Q1 and Q4. Speeds have picked up somewhat over the course of March. That's really just coming out of the seasonal trough -- so that's why we're kind of faster in March.

I suspect with the backup in April, even though we're still moving towards the seasonal peak, which is around June, the net effect would be probably an uptick in speeds but not as much as you might have seen otherwise. And then finally, just to kind of sum up and provide our outlook.

I think if you look back at where we've come from, the market very much got ahead of itself with the pivot basically didn't work out. The developments I just described has driven rates higher in Q1 and early Q2, Vol is much higher. .

And really, there's even uncertainty in the market about what the Fed is going to do. I mean, current market pricing is one cut this year, and there's some who think the next move actually could be increased.

I think that's a very, very low probability, but it just points to the uncertainty in the market and in sharp contrast to the outlook at the end of the last year where everybody was assuming significant cutting. As a result of all this, mortgage valuations are cheapened and are attractive. So that's very good for us. .

So looking forward, all of these developments are not bad for us. They're actually quite nice. We've -- investment opportunities are very attractive. Our funding costs have been very well contained through our hedging strategy. We're in a position where we can protect book value [indiscernible] some extreme moves higher.

We have been maintained very good protection of book value. And we have potential upside to our exposure to lower coupons to the extent we rallied back. So that's kind of what we've done and where we are and what we look at going forward. So operator, that is it..

I guess I will say just before we conclude, our book value, I'm sure everybody wants to know what book is. As of last Friday, we were down about 5% -- as of yesterday, about 5.5% market rallied hard on Tuesday when we had a very soft PMI number in risk assets rallied, but Wednesday and Thursday, we gave some of that back.

So down about 5.5% is our best estimate as of last night and about 5% last Friday. So with that, I will turn the call over to questions, operator. .

[Operator Instructions]. Your first question comes from the line of Matthew Erdner with Jones Trading. .

Can you talk about the repo markets on the overall health and just kind of how they're functioning right now?.

We see no sign of distress. We've actually added some counterparties, and we have a few more in the works. And we're looking at some both sponsored repo and going through State Street again to get a term. But anyway, no, I don't see any stress in the repo markets. We have more than adequate funding, haven't seen changes in haircuts.

No, I mean, I will say this, that like I said that maybe some people are thinking Fed's going to raise rates. I mean the repo market will be very quick to jump on that. They love to price that into term repo. And so even if you go out 6 months, there's almost no cuts priced into it. But other than that, I don't see any signs of distress. .

Occasionally, we'll get some weird money movements around month and quarter ends, but which might drive rates up a few bps. But in general, we've been able to really diversify our funding book across 25-ish lenders and are actively having conversations about adding new counterparties. So -- and haircuts have on average come down a little bit.

There are a few counterparties have been willing to decrease haircuts from like 5 to 4. So it seems pretty healthy. But as you know, that can change in a moment's notice. .

And then I see the move up slightly in coupon kind of hitting the lows and the highs there in the stack.

Have you continued to add, I guess, higher coupons in the second quarter consistent with the strategy that's been laid out?.

Not yet, but that's on the media horizon. I'll be able to use the ATM in the quarter because we did it more less black out, and we get it paid out at the were very modest. But the plan is to continue to do that in the immediate future.

So when we talk at the end of the second quarter, hopefully, there will be much more progress to discuss in that regard.

It's been -- I think there was a slide at the beginning of the deck that showed how pronounced the rate movements have been from October to December and then back to where we are today, back then 5.5s and 6s were consistent with that barbell strategy we discussed.

So as we -- so it may stick out that we have some -- we are exposed to some belly coupons, but we'll continue to maintain the strategy of trying to own low negative convexity, fully extended, deep discount securities that are easy to hedge along with higher coupons that are -- have lower duration and less convexity because they're just not right in the middle of the stack where the extension gets the worst.

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Your next question comes from the line of Mikhail Goberman with Citizens JMP. .

I hope you guys are doing well. And thanks again for the slide deck. I didn't know it was possible to make -- I always tell people it's the best agency mortgage REIT slide deck for like a crash course and agency MBS investing and somehow you guys made it even better. So congrats... It's...

Really good stuff, especially Slide 16 and 17 disclosure is very nice. Just if you could perhaps flesh out your comments on the dividend early in the call, Bob. I believe you mentioned something about the second quarter. I don't know if I heard that correctly, but maybe just flush out your comments about the dividend going forward. .

Sure. It's obviously $0.12. And if you look at that slide whatever it is, where we show the Slide 8. We're running about -- our proxy for taxable income is running above the dividend. So we will reevaluate it if there's a need for an adjustment. I mean the obvious adjustment there would be higher. But as I said, you have to look backward and forward.

So we don't like to change the dividend all the time. And so if conditions are changing in the market over the -- at the time, and it looks like there might be downward pressure on that, that's going to very much affect our decision-making. But we do intend to revisit midyear after the end of the second quarter.

What we'll do is we'll update more precisely our taxable income estimate year-to-date and see if there's a need and then weigh that against what we see on the ground at the time of the outlook going forward for the balance of the year and into next. .

Okay.

So I guess is that adjusted economic income per share line, the one for Q2 that you were reporting in July, August, is that sort of what's going to drive any sort of decision?.

Yes, I think so. And again, it will be a discussion we'll weigh that. But we'll also weigh kind of the outlook from that point forward, whether we think it's going to be stay at that level, go up or go down. So as I said, you don't like to change the dividend frequently.

And so you try to pick a level that is going to be the most appropriate for the medium term. And if that means you over underearned at any given month, that's okay. We don't earn exactly what we pay every month. But that's going to -- the thinking that goes into that decision.�.

Your next question comes from the line of Christopher Nolan with Landenburg Thalmann. .

The deck is great. And Bob, I was like your comments. I thought your stuff on the M2 money supply was really interesting. Food fit all. .

Yes, it is. That's right off of Bloomberg, by the way. You can pull that up. .

Anyhow, I mean, you're dealing with a lot of cross currency here on the macro level, it sounds that you're basically pursuing the same strategy of going to more high coupon stuff. They have a barbell portfolio.

Going forward, as you -- assuming that the economy continues to muddle along and the Fed doesn't really do anything what do you see benefiting more earnings or book value or neither? I mean, a little clarification on that might be helpful. .

Yes. That's a good outcome. And as long as we don't get a violent sell-off on the long end, if we start heading north of 5% on 10 or something, we stay around here that curves inverted. Book should be stable and we can earn the dividend. I think the question is like the curve has been inverted longer now than it's ever been inverted.

And I used to always say on road trips way back when, what happens when the curve inverts, -- how are you going to pay it? And nice to say, "Well, if the curve inverts, that means that the market thinks that the Fed is going to be easing in the future and either the Fed is wrong and they do ease or the market is wrong and they don't and long-term rates go up and then you get a normal curve shape.

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Well, we've been like this for a long time. And so today, the yield on the 2-year is still well below Fed funds -- so the market is still saying we think the Fed's going to ease. We'll see what happens. But eventually, you would think the curve should be going back to a more normal shape.

And the question is when and how? Does that mean short rates rally -- or does that mean long rates go up?" When you look -- you referenced my 2 slide, that kind of tells me that with fiscal policy the way it is, that's stimulative. They're pumping money into the economy.

And if you look at that surge in M2 as a proxy for deficit spending, excessive deficit spending, that would tell you that inflation is probably not coming down anytime soon. .

World's going to stay fairly high, which might lead you to believe that longer-term rates should be higher, but the market still thinks the opposite. The market still thinks they're going to be easy. It's just a question of how much. So I don't know. We don't know. We'll have to watch like everybody else.

But the point is, for now, if nothing really changes meaningfully, book should be pretty stable and the dividend is pretty well covered. So that's not a bad outcome for us at all. .

Yes, I think that's the environment where volatility comes off both into a rally as well as just sort of staying here and being range bound. Certainly, the last 6 months have been extremely volatile. And so I think as the market processes, what exactly is going to happen when the Fed is going to be involved.

We have a lot of hedges on the front end of the curve. In December, we took strides to lock in as many of these anticipated rate cuts as we could. We started the traded euro dollar or SOFR futures for a very long time, when we started locking in some of those cuts. And so I think we're in a good position..

Again, it's going to be -- it's not going to be fun to be a levered mortgage investor if more hikes start getting priced in. And the market has been trading very -- mortgage has been trading very long over the course of the last few weeks.

And so we'll see big green days whenever we rally and days that are better than expected just based on purely on rate moves on days when we have big sell-off and the thought of easing or the prospect of even tightening starts getting batted around mortgage basis really slips in that environment. So that will continue to be the case.

But if we're just modeling around here and the tightening cycle is almost over. We don't have to pause or pivot right into an immediate easing cycle to benefit from this environment. Just one of a little bit of stability is also an attractive environment for us.�.

[Operator Instructions] There are no further questions at this time. I'll turn the call to Mr. Cauley for closing remarks. .

Thank you, operator. Thank you, everybody. As always, to the extent other questions come up or you don't listen to the call live on the replay, you have a question, feel free to call us at the office. The number is (772) 231-1400. Otherwise, we look forward to speaking to you at the end of the second quarter. Thank you. .

This concludes today's conference call. Thank you for joining. You may now disconnect..