Question-and-Answer Session
Operator
(Operator Instructions) Our first question today is coming from the line of George Bose for KBW; please go ahead with your question.
George Bose - KBW
Hi, good mornings guys. I have a question on the -- you said the spread on your new assets is in the 150 to 170 basis points range and I was wondering what the yield is on the ARMs that are resetting, because I was just trying to back into your spread guidance of the 185 basis points and also I was just wondering how much of an impact your decision to tighten your duration gap is having on new incremental spreads?
Phil Reinsch
Well those on new assets, short-reset securities are yielding in the 425 to 450 area, we’re not hedging those, we’re funding those with one-month repo, so you’re looking at closer to 175 basis points there. On five-ones, right now five-ones are yielding around five and a quarter; two year slots are around 350, so kind of the same spread area and it’s been wobbling back and forth.
We’ve made a conscious effort in hear to increase our shorter reset securities as the percentage of our book. I think going forward we will be closer to that 60:40 shorter-to-longer reset number and the spreads are very attractive on shorter reset securities right now and dollar prices are hard and low 101 handles and if you think the next move by the Fed is going to be up we’d rather be somewhat defensive in here.
I mean once again those spreads are very attractive, so we’ll continue to -- in the second quarter our purchases were closer to 75:25 mix, shorter to longer resets and that’s probably going to be the norm going forward, but keeping our duration gap at around four months we should still earn a very attractive return.
Our current portfolio, the legacy portfolio, our shorter-reset securities are about 75 basis points above fully indexed and so that’s why our yields come down slightly. That coupon drifts down between 5 and 10 basis points a month. If rates remain where they are, it will become fully index towards the latter part of the year, but even at those levels, these are very attractive spreads.
George Bose - KBW
And just in terms of the fully index spread on this is up, the 175 basis point number is that sort of where everything shakes up and assuming rates remain stable?
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