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The change in the market yield of our interest rate hedges also changes primarily with the level of risk free interest rates.
−Removed: We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and maintaining adequate liquidity.
+Added: We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and seeking to maintain adequate liquidity.
Changes in spreads impact our book value and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value.
−Removed: Unprecedented government responses to the COVID-19 pandemic, including fiscal stimulus, monetary policy actions, and various purchase and financing programs have impacted and will continue to impact credit spreads.
+Added: Unprecedented government responses to the COVID-19 pandemic, including fiscal stimulus, monetary policy actions, various purchase and financing programs and the expected normalization of such policy actions have impacted and will continue to impact credit spreads.
Prepayment Risk
−Removed: As we receive prepayments of principal on our investments, premiums paid on these investments are amortized against interest income.
+Added: As we receive prepayments of principal on our investments, premiums or discounts on these investments are amortized against interest income.
In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments.
1 unchanged sentence
In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments.
−Removed: Historically low interest rates, high interest rate volatility, uncertainties related to government policies on mortgage finance in response to the COVID-19 pandemic, social distancing, and other factors have made it more difficult to predict prepayment levels for the securities in our portfolio.
+Added: Increased inflation expectations, elevated interest rate volatility and other factors have made it more difficult to predict prepayment levels for the securities in our portfolio.
As a result, it is possible that realized prepayment behavior will be materially different from our expectations.
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conversely, in a falling interest rate environment, the estimated fair value of these securities would be expected to increase.
−Removed: The COVID-19 pandemic and related preventative measures have caused unprecedented volatility and illiquidity in fixed income markets.
+Added: The COVID-19 pandemic and unprecedented fiscal and monetary policy responses to the COVID-19 pandemic, and the expected normalization of such policy responses have caused unprecedented volatility and illiquidity in fixed income markets.
The amount of financing we receive under our repurchase agreements is directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing.
As a result, if these market conditions persist, margin call risk remains elevated and our operating results and financial condition may be materially impacted.
−Removed: The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, including net interest paid or received under interest rate swaps, at March 31, 2022 and December 31, 2021, assuming a static portfolio and constant financing and credit spreads.
+Added: The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, including net interest paid or received under interest rate swaps, at June 30, 2022 and December 31, 2021, assuming a static portfolio and constant financing and credit spreads.
When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations.
The analysis presented utilized assumptions, models and estimates of our Manager based on our Manager’s judgment and experience.
−Removed: At March 31, 2022 At December 31, 2021
+Added: At June 30, 2022 At December 31, 2021
Change in Interest Rates Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value
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Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes.
−Removed: The interest rate scenarios assume interest rates at March 31, 2022 and December 31, 2021.
+Added: The interest rate scenarios assume interest rates at June 30, 2022 and December 31, 2021.
Furthermore, while the analysis reflects the estimated impact of interest rate increases and decreases on a static portfolio, we actively manage the size and composition of our investment and swap portfolios, which can result in material changes to our interest rate risk profile.
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Treasury yields.
−Removed: Given the relatively low interest rates at March 31, 2022, to be consistent, we also applied a floor of 0% for all related funding costs.
+Added: Given the relatively low interest rates at June 30, 2022, to be consistent, we also applied a floor of 0% for all related funding costs.
Due to this floor, we anticipate that declines in funding costs resulting from a significant interest rate decrease would be limited.
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We seek to manage this risk through our pre-acquisition due diligence process.
−Removed: In addition, we re-evaluate the credit risk inherent in our
−Removed: investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.
+Added: In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.
We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields.
9 unchanged sentences
Foreign Exchange Rate Risk
−Removed: As of March 31, 2022 we have an investment of €2.7 million in an unconsolidated joint venture whose net assets and results of operations are exposed to foreign currency translation risk when translated in U.S.
+Added: As of June 30, 2022 we have an investment of €1.6 million in an unconsolidated joint venture whose net assets and results of operations are exposed to foreign currency translation risk when translated in U.S.
dollars upon consolidation.
10 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.