Two Harbors Investment (TWO) RBC Capital Markets Global Financial Institutions Conference 2025 summary

Conference overview

• Industry panel featured senior executives from two leading mortgage REITs discussing sector outlook and strategies.

• Both firms highlighted their diversified business models, with varying allocations to agency MBS, MSR, and residential credit.

• The discussion included macroeconomic trends, Fed policy, and implications for mortgage finance.

• Audience Q&A addressed technical topics such as MSR hedging and GSE conservatorship.

Macroeconomic and market outlook

• Recent Fed rate cuts and shifting expectations have led to increased market volatility and uncertainty.

• Economic growth remained solid in late 2023, but consumer and business confidence weakened in early 2024.

• Panelists expect the Fed to resume rate cuts, likely starting in June, with three cuts anticipated for the year.

• Housing market remains resilient, though regional disparities and pockets of uncertainty persist.

• Conservative risk management and moderate leverage are emphasized given the current environment.

Mortgage spreads and supply-demand dynamics

• Mortgage spreads are historically wide on a nominal basis, but option-adjusted spreads align with historical norms due to higher volatility.

• Falling rates and a steepening yield curve could attract more MBS demand from banks and asset managers.

• Prepayment risk is expected to remain contained unless there is a significant rate rally.