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Accordingly, changes in actual interest rates may have a material adverse effect on us.
−Removed: We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives.
We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads.
+Added: We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives.
The yield on our investments changes over time due to the level of risk free interest rates, the creditworthiness of the security, and the price of the perceived risk.
2 unchanged sentences
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, various purchase and financing programs and the expected normalization of such policy actions have impacted and will continue to impact credit spreads.
+Added: Elevated inflation and the resulting acceleration of monetary policy tightening by the Federal Reserve have impacted and will continue to impact credit spreads.
Prepayment Risk
18 unchanged sentences
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 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.
+Added: The COVID-19 pandemic, unprecedented fiscal and monetary policy responses to the COVID-19 pandemic, and the ongoing 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 June 30, 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 September 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 June 30, 2022 At December 31, 2021
+Added: At September 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 June 30, 2022 and December 31, 2021.
+Added: The interest rate scenarios assume interest rates at September 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.
−Removed: Our scenario analysis assumes a floor of 0% for U.S.
−Removed: Treasury yields.
−Removed: 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.
−Removed: Due to this floor, we anticipate that declines in funding costs resulting from a significant interest rate decrease would be limited.
−Removed: At the same time, increases in prepayment speed forecasts resulting from lower rates are also limited by this assumption.
−Removed: For purposes of our calculations, the net interest income projections are determined for each specific security.
−Removed: In contrast, for the market value analysis, this floor may limit the gains in market values in scenarios where the interest rate drops significantly.
+Added: When applicable, our scenario analysis assumes a floor of 0% for U.S.
+Added: Treasury yields and, to be consistent, we also apply a floor of 0% for all related funding costs.
The information set forth in the interest rate sensitivity table above and all related disclosures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
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These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.
−Removed: We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and credit enhancement levels relative to collateral performance projections.
+Added: We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and
+Added: credit enhancement levels relative to collateral performance projections.
This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.
6 unchanged sentences
Foreign Exchange Rate Risk
−Removed: 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.
+Added: As of September 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.