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Orchid Island Capital Inc  (NYSE:ORC)
Q1 2019 Earnings Call
April 26, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the First Quarter 2019 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, April 26, 2019. 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.

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Thank you, operator, and good morning, everyone. I hope everybody's had a chance to download or view online our slide deck we released last night. I will be spending, as usual the bulk of my time going through the slides. And of course, we have our press release with further details regarding our earnings.

With that, I will start walking through the slide deck. As always, I'll start on Slide 3. And just give you an outline of what we'll discuss today and the outline that really hasn't changed since prior quarters. First thing I'll do is go through our overview of our results for the first quarter of 2019. I'll speak to developments in the market with an eye toward what that meant for us and how we did with respect to positioning the portfolio and our results, go through our financial results and then going through our -- the portfolio characteristics including hedging. And then speak briefly about outlook and strategy.

Turning to Slide 4. Orchid Island Capital generated a net income per share of $0.22, incurred $0.02 per loss on realized and unrealized gains and losses on RMBS and derivative instruments and that include net interest income on our interest rate swaps. Earnings per share of $0.24 excluding that $0.02 loss across the balance of the portfolio. Book value per share was $6.82 at March 31, a decrease of $0.02 from $6.84 at the end of 2018. Total dividends of $0.24 per share were declared during the first quarter. Since its initial public offering, the company's declared $10.305 of dividends. Economic return for the quarter was $0.22 or 3.2% for the quarter that's not annualized. And the company issued slightly under 2 million shares under its ATM program in the first quarter.

Slide 5 just shows you our results. Going back to the inception of the company, one thing I do have to note, we tend to be one of the earlier companies to report. As a result, we did not have the results for the peer group at least in terms of being able to calculating average. So this chart tends to run one quarter behind. So as a result, it only runs through the end of 2018. The first column just shows you the various items we're showing, it's chronological. So we start with 2013, run through the end of 2018 and then show a three-year, five-year and since inception look back returns. The next columns are return -- the next column after that is the peer average. The peer groups are defined in the bottom of the page. In the far column is just the relative performance. I'll just point out that on the very bottom line, our results versus our peer group since inception through the end of 2018 exceed that of our peer average by 4.7%.

Now turning to market developments. And as I said, always like to look at market developments in the context of what it means for Orchid or a levered bond investor. The first quarter was very pivotable as you can see on the left hand side, the red line represents the shape of the US Treasury curve on 3/31. The right side is the swap curve. And obviously, we had a very profound change, not that only that we moved downward in yields, but also the shape of the curve changed somewhat dramatically. Over the course of three meetings, starting in December of 2018, January of 2019 and then March, the Fed's outlook for monetary policy changed dramatically. As we all know, they've adopted a very dovish stance very balanced looking forward, data dependent, and baseline comments made recently by various governors may be looking more toward inflation than actual growth data care. Today's data would be a case in point where GDP growth for the quarter was quite strong, although the inflation data was somewhat soft.

As you can see in the chart on the left hand side or the right hand side, the several points on the front-end of the curve changed below the current level of Fed funds, which is 2.4%. And this reflects the market anticipating future policy to be a cut rather than a hike. And this is very critical because as we entered the -- near the end of 2018, Orchid Island and many of our peers were positioned very defensively, both in terms of the assets we held, in terms of trying to minimize the extension risk of those assets, less concerned with prepayments and also very high focus on hedging or funding costs, which were going up every quarter. But that has shifted dramatically this year and we have taken steps both on the asset side and on the hedged side to address these developments.

On Slide 8, you can see the movement in the 10-year treasury and the 10-year swap, both for the quarter and for the two-year look back. And I just want to point out in the top left, if you look at the 10-year treasury, you can see that for the most of the quarter we were trailing at 2.60% to 2.80% range. And as a result of the Fed meeting in March, we broke out of that range to the low side, the market seems to be trading at least for now in a new range of 2.40% to 2.60%. And this week we've actually -- last week, we were at the high end of that range and now we seem to be moving back toward the low end of the range. Who knows what the future holds, but we clearly have seen the paradigm shift in the markets over the last few quarters.

Slide 9 just shows you -- this is a very familiar slide, we've talked about the slope of the curve. We are levered bond investors like all of our peers and the manager spread of course is very important. As you can see over many, many years and certainly, in the case of Orchid Island, this basically covers our life, our history. The curve's been generally flat in throughout that entire period. So only in the last few months that we've seen the curve start to steepen. And the reason is this that the, again, this is the spread between the five and 30-year Treasury. The five-year has moved low relative to 30-year reflecting the market's new expectations for Fed easing. And so that's created steepness in the curve and the market continues to steepen today.

Slide 10 shows you the performance of various fixed rate 30-year coupons versus hedges using JP Morgan data. This goes back to the end of 2017. So we've talked about this in the past. The blue line represents a 30-year mortgage, the red is a 3.5% coupon, the gray is 4% and the green is 4.5%. As you can see in the fourth quarter, the higher coupons have done quite poorly. Whereas 3.5% -- or 3% coupons have done well. And the reason for this is several. As we've moved out of a higher rate environment into a lower rate environment and out of the winter season, the market of course expects speeds to accelerate, just for seasonal reasons, but also because you've got lower rates. And also another thing that's very important and I'm going to talk about is the fact that the TBA deliverable, the cheapest to deliver collateral that the market receive is -- takes delivery off the TBA has changed over the last six or nine months. What we've continued to see on a regular basis is a collateral that's produced with a weighted average coupon to the borrower, which is very far above the coupon the investor receives. And this has to do with things that are not relevant for this conversation, its more about buy-up and buy-down (technical difficulty) point to the matter is that we are seeing collateral delivered with a weighted average coupon that's far above the net coupon, tends to have higher loan balances and higher FICO scores. As a result, it's very, very callable or refinanceable as -- or that would -- of course, that means that higher coupon securities are more refinanceable than they would be otherwise and that's reflected in their performance.

With respect to the 3% coupon, obviously, had a very strong quarter and has given back some of that since. That has a lot to do with convexity hedging as rates move lower, especially on the Partner Services.

Turning now to Slide 11. One of the consequences of the change in the deliverable of the TBA is that the raw market has been impacting in a negative way in a big fashion. As a result, the roll, the drop that you typically see, which sometimes was reflective of very, very low financing and represented a good investment opportunity, has become very, very poor of late. We show 4% and 4.5% coupons here, but I would point out that across the stack, they are very similar. We did see an occasional pop here and there in one coupon, very short period of time, but generally these have been low. As a result, income from the dollar roll market has been soft. However, as you know, we do not use the dollar roll market much from an investment side, we use it as a hedge. And that lower drop is actually advantageous for mass in terms of our hedge cost. So we actually welcome that development.

On the top right, you see pay-ups for certain specified pools. As you will expect given the poor quality of TBAs, specified pools have done extremely well. The absolute price is actually say lower than what we saw the last time rates were at this level. But it's not because the pay-ups so much have dropped, it's because the price of the TBA has dropped, all else equal simply, because of the deliverable. In fact, last week or mid of last week when we were at the higher end of the range, we've been in this 2.40% to 2.60% range. There were some specified pools that traded very aggressive vessels. Next week, we'll start to see the May production cycle and you would expect those levels to be very, very robust, especially with the rally of this week especially from the hold.

Turning to Slide 12. This is the same performance graph for the same coupons, but it's reflecting what we call LIBOR OAS. It's for TBA on the left side, specified pools on the right side. And as you can see, all of these have actually cheapened. But one thing to keep in mind when you calculate an option adjusted spread, a component of that is the convexity cost or the fact that the duration of a mortgage asset can change as rates move and a big driver of convexity cost is volatility. Volatility has been lower and lower and lower of late. As a result, the convexity cost is smaller and the spread seems to widen. These assets are cheap, no questions, in some cases, but a lot of this widening merely reflects what's going on in the Wall market as much as anything.

Slide 13 just shows results across the aggregate index for the quarter. As we mentioned earlier, we had a very meaningful pivot on the part of the Fed. The Fed is now aligned with all central banks, all the major industrialized economies across the globe and have adopted a very dovish stance. In the eyes of the market, the central banks basically have their back. As a result, we've seen a very strong risk on tone to the market. So when you look at this data, right in the middle of the page is the aggregate US Agg, so return of 2.57% was very positive. But if you notice, if you look to the right, you tend to see the riskier asset types, domestic investment grade corporates, emerging investment grade corporates, high yield or emerging high yield and finally, equities. And to the left, you see the more risky -- less risky assets like treasuries and mortgage backed securities, agency mortgages that is 2.17% for the quarter.

Slide 14 just shows you volatility and implied volatility on a three-month by 10-year swaption. Despite you see on the right hand side of the page, which reflects the reaction of the market to the surprise, to the dovish side of the Fed of their March meeting. But since then, vols come off and continues to come off and is actually at multiyear lows. And that's definitely was reflected in those OIS numbers we mentioned.

Slide 15 just shows you the spread between one-month LIBOR and the one-month overnight index swap. And you can see it's nothing much to say here as in effect, this has been relatively stable of late for the -- so far in 2019. 2016 is kind of in caps rates, what we've been talking about in pictures. If you look on the bottom left, you see the red line, which would be the dot plot, this would reflect kind of a consensus of FOMC members' outlook for Fed funds going forward that was in December of last year, as you can see there were several more hikes of the blue line reflected the market expectations and its gradually over the course of the heightening cycle tended to always reflect less hikes than the Fed, but also nonetheless did reflect some. As you can see with respect to March, that is definitely changed. In fact, when you look at the hike, the one hike that's in there for the Fed, that's somewhat kind of a mystery considering that their summary of economic projections going forward show growth very stable, inflation stable and the unemployment rate slowly creeping up. So given the fact that they are not hiking now, you even might wonder, why they would hike in the future. But again, that's just their dot plot. If you listen to comments made by various state governors over the last few months, they are much more dovish and is reflected there.

With respect to our financial results on Slide 18, a few things I want to point out. As usual, on the left hand side, we show income statement kind of parsed out between what was generated in terms of net interest income on the portfolio and in the effect of mark-to-market realized and unrealized gains and losses. As you can see, they netted in the case of unrealized and realized gains and losses to a slight loss. I want to point out one line item in there, which is interest rate futures. In the last year, we were positioned very defensively in terms of our funding, hedges, we had them at a very high level and in the very front-end of the curve. We have since transitioned away from that. But most of the loss that you see there was generated from those futures, basically a curve before, we've removed those positions. Going forward, the hedge book looks materially different. And that's a result -- and that's why we had a $0.02 slight gain. With respect to the strategy and the allocation of capital, the passthrough portfolio generated a 10.1% return for the quarter, interest only securities as you would imagine with the rally, were negative close to 9%, offset -- and almost equally magnitude by our inverse only securities up 8%, because of the fact that the Fed hikes were priced out of the market, but because we have more capital allocated to the interest only securities. The net of structure was negative 5.8%, and a very thing it was still positive 3.8% reflecting the overall bias toward the passthrough strategy.

In terms of our earnings on Slide 19, a couple of things I want to point out here. We -- this is a very broad historical picture of our manager spread and our dividend and, of course, just to walk through the items on the top of the page, the red line is our economic cost of funds. And you can see that, that is plateaued and actually dropped this quarter. The net interest spread rate drop as well from 2.14% to 2.01%. But that really reflects more a drop in the realized yield of over 25 basis points. And that in itself was driven primarily by an increase in premium amortization. Entering the quarter, we still had a very high concentration of high coupon fixed rate securities, mostly purchased at higher dollars prices and speeds were fast this quarter, especially toward the end of the quarter. As a result, premium amortization was a little higher and that dropped. Over the course of the quarter and into the second quarter, we have continued to reposition the portfolio, reduce the concentration of higher coupon securities, added lower coupons in the fixed rate space, 3% and 3.5% coupon. As a result going forward, we'd expect that the weighted average coupon of the portfolio, while it might be slightly lower the securities we're adding are at lower dollars prices, would expect to be -- have lower speeds and as a result, the realized yields should be relatively unchanged. So we -- our outlook going forward all else equal, and of course, that we know that can change rapidly, but going forward, we think the earnings of the portfolio should be fairly stable. And as I mentioned, our economic interest cost seems to have peaked and actually dipped slightly lower. But absent Fed hikes or eases, that would be stable as well. So that's kind of the outlook for short-term for the earnings front.

Slide 20 just shows you the same thing. And as I said, it seems like we'd kind of get the trough as a result of the long, long Fed hiking cycle and it seems like we should be stable for the time being.

Slide 21 just shows you an allocation of the capital, not much to say here. If you look on the right hand side, you see where we kind of do the roll forward across the different sectors and just one thing to point out we did not add any of the structured securities in the quarter. Therefore, as a result, the run-off, the capital allocation shifted. But that's really just a result of the fact that we did not add to the structured portfolio in Q1 and we have since. And so that capital allocation is in fact closer to where it was at the end of the last year.

The next slide is 23. I want to spend some more time talking about our characteristics of the portfolio. Remember, this shows you the portfolio as of 3/31. We have continued to make changes to the portfolio since then. With each -- and I'll discuss those. The left side was the various assets, post reset ARMs, fixed rate CMOs and so forth and then the structured securities, the subsequent column view of the market value and the percent of the allocation of the portfolio. ARMs are very small, not worth mentioning. With respect to fixed rate CMOs, still close to 0.25%. It was slightly higher than that at year-end. That really just reflects a rundown of that. There were no changes there. There were changes to the 15-year allocation at year-end, that was about 25.6% to 15 years, now at 17%. Again, a 15-year security is generally a shorter duration defensive asset. Consistent with the development we've seen in the market, our allocation has been shifted downward. And as you might expect, the 30-year allocation has increased to 52.33% at 3/31, it was at 41.33% at year-end. So a material change. But not only did we change the allocation of 30 years, but also within that 30-year pocket, we have reduced some of the 4.5% and 4% coupon, added 3.5% and they're not even shown here because we didn't have any at the time, but we have since added 30-year threes. So we have a little bit more of a barbell applied, but moving in that direction in terms of the coupons we owned. And that reflects the outlook for the rates market, trying to have a little more diverse coupon mix, not so defensive. And that's such a preoccupation, it call protection at all cost. We've added some of these lower coupon securities where prepaids are not as bigger concern. But we do get some duration out of those assets and from a total rate of return perspective, they're very attractive. As a result, you would expect to see at the end of June -- June quarter, this would even -- look even more balanced.

As I mentioned, speeds were higher in the quarter. If you look to the right hand side of the page, you see one and three-month speeds. In the 30-year and total passthrough, those numbers now are in the low double digits. For Q -- comparable numbers for Q4 were about 300 basis points or so lower than that. So we did see the combination of coming out of the seasonal slowdown and the rally and rate speeds pick up. And we would expect that they would still accelerate possibly from there, but as I mentioned, we have changed the coupon mix, we've added some lower coupon securities that will not prepay as fast and so even if the weighted average coupon drifts slightly low and the fact that we've added these lower dollar price securities, it would be expected to prepay lower. We think premium amortization should be contained and that's why we're -- feel comfortable with our positioning in terms of -- just kind of the yield we would expect to earn in premium amortization going forward.

Slide 24 just shows all this in a -- on a historical perspective.

Slide 25 shows leverage. As you can see we remain at the high end of that range. That's where we sit today. In early second quarter, we would expect to stay there. We think with the Fed appearing to be on hold for the time being and wanted -- and the central banks really across the globe in a very dovish stance, not to mention the global growth numbers we've been seeing for instance, Korea just recently reported negative growth for the first quarter and the central banks to remain in a very defensive dovish posture. And therefore, we're comfortable having our leverage at the higher end of the range.

Slide 26 shows our hedge positions. I want to point out the top left, our Eurodollar positions, very significant changes there. As you see, in the case of the contracts, we have in place; one, we do not extend them simply because we're moving our hedges further out the curve and we do not see as greater need to protect against increases to our funding costs in the near term. These contracts notionals, $200 million in case of June, but that was $1.5 billion at the end of the year. All the remaining contracts of $500 million, that was $1.8 billion. So a meaningful shift there. And where did that go, if you look on the bottom where you see a swap book, we added $500 million in value of curve swap, so we'll probably continue to add there. And so you saw a shift in the swap book.

In the swaption book, we have a position in place there also in the value of the curve and we'll probably continue to maintain that at the same or higher levels. With respect to TBA hedges, again, as I mentioned, the raw markets have been soft, so that's to our benefit. We've shifted in and out of coupons over time to generally 3% and 3.5% coupons.

The next slide I am going to mention is just Slide 28, briefly. What we show here is the red line is our book value over time. The blue line is the stock price in the book. The ones below, whether they'd be pointing up or down, reflects sales of stock generally to our ATM program or repurchases of stock when the price of the stock has been below book value. And what we're trying to show you here is that generally we try to be as the best stewards we can of our capital when the stock trades at a premium and this -- on this the investment opportunities are OK or better. We tend to issue stock and when the stock is cheap, we like to buy back shares and try to accrete book value and we will continue to do so going forward.

That's pretty much it from my prepared remarks. I did want to say one thing before we open it up for questions, many of you may or may not know, Dave Walrod, who was an equity analyst with Jones recently and prior to that with Ladenburg. Dave has covered Orchid Island since -- covered -- he recently passed away, very unexpectedly. I knew Dave very well -- Hunter and I knew Dave very well. He's covered Orchid since really before our inception. He's been an analyst covering us religiously. Speak to -- we spoke to him very regularly, did number of roadshows. And Dave was a great guy and he will be missed and I just wanted to take this opportunity to acknowledge we all thought very highly of Dave and we will miss him going forward.

And with that, operator, I will turn the call over to questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Christopher Nolan with Ladenburg Thalmann. Your line is open.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Hey, guys. And I echo the sentiments on Dave Walrod. He was a great guy. The share count went down quarter-over-quarter despite issuing share. So did you guys repurchase shares as well as issue?

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Yeah, There were some of the buyback activity, which ended in late Q4, actually settles in January as a result of GAAP accounting purposes. It does not -- if you bought the shares back, there is a delayed reaction or recording. So same with the sales.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Got you. And...

Robert E. Cauley -- Chairman, President and Chief Executive Officer

So -- but I -- and it would be higher today. In fact, I believe, the press release we've put out last week on the 17th, we would have updated share count, would reflect a higher. It's still below the peak. Through our share buyback activity, we bought back I believe, 10.4% of all shares that we'd ever issued. So we're still below that all time peak and shares outstanding, but we are slowly growing back.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Okay. Bob, do you guys have a weighted average price for what you bought -- issued shares at?

Robert E. Cauley -- Chairman, President and Chief Executive Officer

It's in the queue. I don't have it in front of me, but it will be in the queue released later today. I want to say it was $6.84.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Great. And then I noticed that your duration declined in the quarter. Should we expect it to start raising going forward given your comments?

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Well, that's novel duration, Chris. There's been times when we were positioned extremely defensively and it was close to three, that's a model duration, the empirical duration, which matters more for us was much lower. And I would expect us to trade empirically longer than we did. So I would not put too much confidence in the model number. We do publish it and it's an unbiased representation of the portfolio as missed characteristics, but it is a model driven number. It's -- they do have the limitations.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Chris, just -- there's definitely been a shift in the lower coupons, which have -- tend to have a longer duration. So you're certainly right on that front. Some of the higher coupons -- so if you have higher pay-ups, so they tend to also be long. But there's been a strategic shift to try to add a little bit of duration as our bonds have gotten shorter into the rally that's occurred this year. So we'll continue to try that. I think our goal is to be a little more flat during the Fed tightening cycle. We are always trying to be slightly short -- have a short biased at least empirically. And what I think we want to really sort of be more flat here going forward. So in order to do that, we'll have to add a little bit duration in the rallies and then hopefully back it off as we serve delta hedge through these rate movements within the cycle.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Okay. Thanks, Hunter. Final question is, Bob, in your comments you mentioned for the TBAs. It seemed that the higher coupons stuff has more -- it's more leverageable, more -- has -- my impression was you can get increased leverage from higher coupon bonds. Should we read that where your balance sheet leverage ratio could pick up back to nine times? Or how should we read that?

Robert E. Cauley -- Chairman, President and Chief Executive Officer

I think it would stay in the -- yes, we've been -- 8.5 was at the end of the quarter, but yes, I would expect it to stay at the high-end of our historical range, which as you mentioned about 8.5 and running low nine's. And I think we're comfortable doing that. Consistent also with the migration, not just the high coupons with high pay-ups and therefore duration, but also in contrast with our prior history on lower coupons as well, which have duration just because of the discount nature of the bonds.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Okay. And final question. Does -- do you think the strong GDP number today sort of -- gives you any sort of change in terms of how the Fed might be? I'm thinking about the right environment because from my observation, it looks like that GDP number came in a bit stronger than people were expecting.

Robert E. Cauley -- Chairman, President and Chief Executive Officer

It was. It did other than any of the market rally going on into the number briefly backed off and resumed rallying. A couple of things, 3.2%, a 1.03% of that was net exports, the trade balance changed a lot and then also I think there's 0.65% inventory build. And the market assumes both of those are kind of transitory. Another number that's very important is real final sales to do domestic purchases, which excludes net exports and inventory build. That number was 1.4%. If you go back to Q1 of last year, it was I think a little over 3%. It's declined every quarter since and I think that might be one thing the market look forward through to and then also the PCE data was a little on the soft side. So it could be that what we're seeing is continued robust growth without any inflation. And that's kind of a paradox if you're a traditional central banker because you assume prolonged periods of extended -- of high -- above-trend growth, but you should get inflation, but we don't seem to have it. And I would assume it's hard to say because Powell (ph) has only been in the seat for a short period of time. But he seems to get it. And I don't think he's going to over hike in the face of soft or weakening inflation just because the growth numbers or the non-farm payroll numbers will look a little growth or little strong. If he did I think, it'll probably be a mistake. I also think that the markets, equity markets in particular would react very negatively. We get kind of a repeat of what we saw last December. He seems to -- kind of to get it and I think that was a good thing because at the end of the day if you can somehow maintain growth of these levels without inflation, that's probably something you're supposed to welcome and not try to fight. So we'll see.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

Great. Thanks for taking my questions.

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Sure.

Operator

Thank you. (Operator Instructions) And our next question comes from Steve Delaney with JMP Securities. Your line is open.

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Thanks. Hi. Good morning, Bob and Hunter. How are you?

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Hey, Steve. How are you?

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Great, thanks. Just one thing for me. Listening to a couple of earnings calls earlier in the week, we seem to be getting a little disparity in terms of where people were suggesting repo was being priced. And we also notice, we track this, I guess, it's GCF, RMBS on Bloomberg. And we're also seeing some day-to-day volatility like it's not unusual for that rate to move 5 or 6 basis points in a day. So I'm just wondering if you could just give us a couple of -- tying into your chart on Page 25, just sort of general view of conditions and the agency passthrough repo market and where you are seeing pricing currently? That'd be great. Thanks.

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Okay. I'll speak briefly and then I'll let Hunter talk. But I think the repo market itself has been stable. The GC market has been volatile, no doubt. I don't know if that's other than over quarter end, intra-quarter, it's not transferred -- you've seen -- not seen that passthrough to the repo markets and that's a lot more to do with settlements of -- in your cash management bills, three, six, 12-month bills and shortages of cash in the system. So you do see volatility in the overnight funding markets. And you do see it in the repo markets over quarter end, but otherwise, I would say, it's stable and trending down.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Yes. We don't have a lot of exposure in the overnight market, so we tend to, I guess sort of draw a little bit of a line through that volatility.

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Got it.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

I think our overnight repos, which are all of the Federal -- or all of them are at Federal Home Loan Bank were priced at 2.85% over year-end and has since come a way off. And I think a lot of people were shell-shocked from that going into the end of the first quarter. And there was sort of a little bit of panic in the market. So we started pricing in slightly higher repo rates trending into the end of March. And then it turned out to be just a complete nothing on the turn. So I think it's continuing to sort of drift back down. We still see people trying to take advantage of hype in the year-end -- or quarter-end anxiety. But just to give you some data points...

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Sure.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

I think we (inaudible). One month repos in the low 2.60s, if we want to get out over quarter end, it's going to take 2.63%, 2.64%, 2.65% for say a three-month type of turn. And you're able to do -- it's because of the shape of the current -- and the slight probability that if Fed cuts at some point in the next year, so you're actually seeing a return of term rates that are lower than current rates. So you can lock in today.

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Price again.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Yes. six months...

Steven Cole Delaney -- JMP Securities LLC -- Analyst

The forward curve, yes.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Yes, exactly. So we haven't been really thinking over six months, yes, but we did a lot of six months in the low 2.60%, I want to say.

Steven Cole Delaney -- JMP Securities LLC -- Analyst

That's extremely helpful, Hunter and Bob. And I think that the concern was that the level of 2.85% was kind of thrown out there. And we certainly over the years yet and we know the quarter end can be crazy and I sort of remember that the Japanese year-end is March 31, isn't it? And that sometimes...

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Yes. And that was elevated then.

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Yes. And that exacerbates it. So what I was trying to get at is while spot rates for a few weeks before and after quarter end may have been that high that what you're seeing on the run now is more like a 2.60% handle whether it's 30, 60 days.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Yeah.

Steven Cole Delaney -- JMP Securities LLC -- Analyst

Okay. That's very helpful, because a lot of us -- I know Chris is doing the same thing and he probably heard the calls I heard. And as we sit down, obviously, we've got to adjust our repo rates in our model for 2Q and beyond kind of based on current conditions. And that is -- that's a very helpful comment. So thanks for that and have a great day.

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

All right, Steve. Thanks.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn the call back to your speakers for closing remarks.

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Thank you, operator. Thank you everybody for taking the time to listen in today. To the extent somebody has questions that come up later in the day or next week, please feel free to call us or if you just going to catch a replay. Our number here at the office is (772) 231-1400. We are always here to take your questions and welcome them. Otherwise, we will speak to you next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

Duration: 39 minutes

Call participants:

Robert E. Cauley -- Chairman, President and Chief Executive Officer

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann -- Analyst

G. Hunter Haas -- Chief Financial Officer and Chief Investment Officer and Director

Steven Cole Delaney -- JMP Securities LLC -- Analyst

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