Arlington Asset Investment Corp. (NYSE:AI) Q4 2019 Earnings Conference Call - Final Transcript

Feb 18, 2020 • 10:00 am ET

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Arlington Asset Investment Corp. (NYSE:AI) Q4 2019 Earnings Conference Call - Final Transcript

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Operator
Operator

Good morning. I'd like to welcome everyone to the Arlington Asset Fourth Quarter 2019 Earnings Call. Please be aware that each of your lines is in a listen-only mode. After the Company's remarks, we will open the floor for questions. [Operator Instructions]

I would now like to turn the conference over to Rich Konzmann. Mr. Konzmann, you may begin.

Executive
Richard Konzmann

Thank you very much, Olivia. Good morning. This is Rich Konzmann, Chief Financial Officer of Arlington Asset. Before we begin this morning's call, I would like to remind everyone that statements concerning future, financial or business performance, market conditions, business strategies or expectations, and any other guidance on present or future periods, constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances.

These forward-looking statements are based on management's beliefs, assumptions and expectations, which are subject to change, risk and uncertainty as a result of possible events or other factors. These and other material risks are described in the Company's Annual Report on Form 10-K and other documents filed by the Company with the SEC from time to time, which are available from the Company and from the SEC and you should read and understand these risks in evaluating any forward-looking statements.

I would now like to turn the call over to Rock Tonkel for his remarks. Thank you, Rich. Good morning, and welcome to the fourth quarter 2019 earnings call for Arlington Asset. Also joining me on the call today is Brian Bowers, our Chief Investment Officer. During the fourth quarter, as improved economic outlook, as a result of Federal Reserve monetary policies and lower global trade uncertainty led to a risk on move in the global financial markets, which drove an increase in the 10-year US treasury rate and a steepening of the yield curve. The 10-year US treasury rate increased 26 basis points during the quarter, ending at 1.92%, and the two to 10 year US treasury curve steepened 31 basis points. In addition, swap spreads widened 8 basis points, benefiting agency MBS portfolios hedge with interest rate swaps. On the funding side, the Federal Reserve's 0.25 points rate cut in October along with its actions to provide substantial liquidity to the repo funding markets were significant positive steps to funding in our business. Against this backdrop, price performance of mortgages were strong in the fourth quarter, as the spread between the yield on agency MBS and benchmark interest rates tightened meaningfully with pay up premiums on specified pools performing particularly well in light of the rise in mortgage rates. Since the start of the new year, global economic concerns surrounding the impact of the coronavirus and other macroeconomic factors have led to a rally in the 10-year US treasury rate and some retracing of the steepening of the yield curve that occurred in the fourth quarter as well as higher market prepayment speed expectations for agency MBS. Against this backdrop,