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#Leverage could come down if we are able to increase our exposure to the Non-Agency side a little bit, <UNK>, because as I had said earlier to Doug <UNK>, we look at the CRT bonds as about 4 times to 5 times to 1 time versus our Agency assets depending on which Agency assets they are so say it's 4 times.
So if you were to buy $100 million CRTs, that would mean that would be $400 million less Agency bonds so that would reduce leverage appropriately.
And one thing that nobody's asked is why aren't you buying more CRTs.
When we started buying, they were in the low 600s to high 500s.
We watched the whole shenanigans from late January and February when the markets were very volatile and unstable.
We started to buy not too much longer after that when we announced the JAVELIN deal.
So now that the CRTs are priced inside a [4.25%], they are not as perfect for our portfolio as they might be at [5.25%].
So, our reduction of leverage will be in sole response to our exposure increase in the Non-Agency area.
Complete lower balances on the Agency side, that's as simple as that.
But we've kept some of our exposure in the 10-year sector as we added the Fannie 3% dollar roll.
So, we're right where we want to be with our hedges, very comfortable with it.
We're not hedging our CRTs or most of our Non-Agency assets, they don't need to be hedged.
They are either uncapped floating or the durations as a result of that are very, very low so we don't need.
So as we increase if we are able to increase our exposure to the Non-Agency assets, you would see the hedge ratio versus the entire book go down.
I might focus on as an analyst what the hedge ratio is versus the Agency portfolio and so that's kind of what we do.
As I just said, $7.5 billion there and you have a good portion of that hedge about 75% of it.
So, that's how I would look at it.
I noticed in your comments that you put out this morning, we look at it a little differently.
So, what we do is we look how much of our equity is tied up in haircuts and currently 19% of our equity is tied up in haircuts for Non-Agency assets and so that's how we look at the allocation.
I'm looking at the monthly Company update, what page is it.
That's a really good question and page 5 is accurate and the 19% is accurate.
So, the 19% reflects all of our equity and the 37% represents the equities that's tied up in haircuts and excludes the liquidity position.
So at the bottom of the page you can see we have $564 million in liquidity, that 37% excludes that.
So to your point and this was brought up in another private call that we had recently, I think we'll be more explicit as we present that in the future.
So a good pickup, <UNK>, thank you.
So, the 19% represents all of our capital and includes the function of the fact that we have a lot of liquidity sitting on the balance sheet.
So, I think for modeling purposes if you want to look at our income producing assets, maybe if you look at the 37.6% might be a simpler way to model that meaning that you're excluding the liquidity function.
If you want to include the liquidity function, you got to put the 19%.
And really anybody in this business is going to have to look at it both ways.
We consider liquidity to be just as important if not more important than the assets that we're picking in some respects because if you look at all the volatility in the markets since January 3 or January 4, without that liquidity a lot of those assets might have to have been sold.
So I'm giving you two answer to your question, but I hope you can choose one that fits your perspective best and choose it.
We hope to take the 19% number up toward 25%.
So, that's still our goal and a lot of it depends on where spreads are in the marketplace.
I was pretty explicit a couple of minutes ago about how the CRTs have come in so much.
The non-performers have come in almost 100 basis points as well.
So at some point, and maybe this morning might be a good time to explain that, the Agency assets levered business model 8 times actually is going to produce a little bit more than the NPLs on a levered basis if you want to lever those 3.5 times to 4 times.
So, for us to get to 19% to 25% is going to be dependent on the attractiveness of the spreads in the Non-Agency environment.
Buybacks always have to be part of something that we discuss at every single Board meeting and we also have monthly Board calls and it's part of every single conversation.
What we're looking at right now is the following.
We're including our preferreds about $1.150 billion at market cap although if there weren't great opportunities to invest in, we might be considering more heavily buying back shares.
However, the investment opportunities have been really, really good recently.
Our returns in the second quarter, income returns with the book values returns because we were able to find assets that offered a lot of value.
So the answer is if there is no longer assets that offer great value and we're still trading at a large discount, you would look to see us buy some more shares back.
I'm going to let <UNK> give you a little color on that.
The one thing I'll say before I hand it over to <UNK> is we like that asset class a lot and we purchased as much as we could when spreads were wide and they've come in so darn much that they just don't make sense anymore.
But <UNK>, maybe you can be a little more definitive on what the percentage of NPLs is and RPLs in the portfolio and where we stand there.
Mostly BOLTs.
Thank you very much for tuning into our second quarter earnings call.
Please feel free if you have questions at any point in time to call <UNK>, Jim <UNK>, <UNK>, or myself at the office and we'll get back to you immediately .
Thank you very much and have a good day.
