18 unchanged sentences
Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.
−Removed: Table of Conten t s
Interest Rate Effects on Fair Value
15 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: Elevated inflation and the resulting acceleration of monetary policy tightening by the Federal Reserve have impacted and will continue to impact credit spreads.
+Added: Inflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility have impacted and may continue to impact credit spreads.
Prepayment Risk
3 unchanged sentences
In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments.
−Removed: Increased inflation, elevated interest rate volatility and other factors have made it more difficult to predict prepayment levels for the securities in our portfolio.
+Added: Uncertainty regarding the rate of inflation, fiscal and monetary policy initiatives, 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.
10 unchanged sentences
The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors.
−Removed: Generally, in a rising interest rate environment, the
−Removed: Table of Conten t s
−Removed: estimated fair value of these securities would be expected to decrease;
+Added: Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease;
conversely, in a falling interest rate environment, the estimated fair value of these securities would be expected to increase.
−Removed: 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.
+Added: Pandemics and other widespread crises, including any related fiscal or monetary policy responses, may cause extreme 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.
−Removed: 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 December 31, 2022 and 2021, assuming a static portfolio and constant financing and credit spreads.
+Added: When these or similar market conditions are present, margin call risk is elevated and our operating results and financial condition may be materially impacted.
+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, as of December 31, 2023 and 2022, 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 December 31, 2022
−Removed: At December 31, 2021
+Added: As of December 31, 2023
+Added: As of December 31, 2022
Change in Interest Rates Percentage Change in
8 unchanged sentences
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 December 31, 2022 and 2021.
+Added: The interest rate scenarios assume interest rates as of December 31, 2023 and 2022.
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.
19 unchanged sentences
This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.
−Removed: The pace of commercial real estate fundamental improvement is moderating given accelerating monetary policy tightening by the Federal Reserve.
−Removed: Occupancy and rental rates have stabilized and valuations face downward pressure as property borrowing costs remain elevated.
−Removed: Meanwhile, residential real estate fundamentals have also deteriorated due to historically low affordability driven by the dramatic rise in mortgage rates throughout 2022.
−Removed: Table of Conten t s
−Removed: CMBS loan delinquencies increased in the fourth quarter but remain materially lower than COVID-19 peak levels.
−Removed: Many borrowers continue to experience difficulties meeting their obligations or seek to forbear or further forbear payment on their mortgage loans.
−Removed: Given tightening lending conditions, loans may continue to experience increasing delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities.
+Added: Given deteriorating fundamentals and tightening lending conditions, borrowers may experience difficulties meeting their obligations and refinancing loans upon scheduled maturities.
+Added: Loans may experience increasing delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities.
We also expect credit rating agencies to continue to reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.
−Removed: Foreign Exchange Rate Risk
−Removed: As of December 31, 2022, we have an investment of €43,000 in an unconsolidated joint venture whose net assets and results of operations are exposed to foreign currency translation risk when translated in U.S.
−Removed: dollars upon consolidation.
−Removed: We have historically sought to hedge our foreign currency exposures by purchasing currency forward contracts.
−Removed: The unconsolidated joint venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible.
Risk Management
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.