The company’s agency RMBS holdings dropped to $863.3 million in the fourth quarter, a 5% decline from $909.4 million in the previous quarter. Over the same period, Ellington increased its non-agency RMBS portfolio by $4.8 million to $12.6 million, while its holdings of interest-only securities were roughly unchanged due to tighter yield spreads.
“In recent quarters, we’ve highlighted the disciplined approach that we’re taking with portfolio turnover,” Penn said. “With reinvestment yields increasing steadily during 2022, higher portfolio turnover would have boosted ADE in the near term, but at the potential cost of a lower book value per share. Instead, we have chosen to be selective in turning over the portions of our portfolio that we view as offering superior relative value, particularly our lower coupon pools, and have prioritized total return over short-term ADE growth. In addition, our strong liquidity position has enabled us to add pools opportunistically during certain periods of acute volatility, such as in September.
“As a result of this approach, we entered the fourth quarter with an attractive portfolio that stood toward the upper ends of our historical ranges of debt-to-equity ratios and net mortgage basis exposure. We were thus well positioned to benefit from the RMBS spread tightening during the fourth quarter, and we recouped a portion of the unrealized losses from the prior quarter. Having just bought agency RMBS on weakness in September, the spread tightening enabled us to sell into strength in the fourth quarter, including well-timed sales of certain of our discount pools.”
While these opportunistic sales have significantly reduced the company’s leverage, Penn said they are working on rotating a portion of their capital into attractive opportunities in the non-agency mortgage markets.
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Source: mpamag.com