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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Complementary allocation across Agency mortgage securities, residential credit securitizations, and high-yielding servicing assets insulates portfolio carry against rate volatility while capturing attractive spreads across the residential mortgage ecosystem."
During the third quarter of 2026, the company generated an economic loss of 7.6% net of fees, reflecting the impact of interest rate volatility and spread widening on book value. Earnings available for distribution stood at $0.80 per common share, exceeding the declared quarterly cash dividend of $0.75 per share, while GAAP net loss was $1.36 per share. Dedicated capital remained defensively allocated across strategies, with economic leverage increasing modestly from 5.6x to 5.9x quarter-over-quarter. Recourse economic debt closed the period at $94.0 billion against $15.8 billion in total equity, supported by an unencumbered liquidity reserve of $8.5 billion in financing assets and unencumbered Agency MBS. The macro environment was characterized by resilient economic growth, stubborn inflation above target, and heavy sovereign and corporate debt issuance that pushed benchmark real yields higher. Fixed income investors demanded increased duration premia as neutral policy rate expectations adjusted upward, creating interest rate volatility that pressured housing affordability. However, mortgage market technicals exhibited durable demand, underpinned by positive fixed income inflows and continuous GSE support. Depressed housing turnover maintained exceptionally slow prepayment activity, reinforcing cash flow stability across discount-priced assets. Portfolio management focused on deploying capital into higher-coupon specified pools—primarily 5.5% and 6.0% paper—while lengthening Treasury futures hedges to actively manage mortgage extension risk. In the residential credit segment, Onslow Bay maintained rapid securitization momentum with record whole loan funding volume, emphasizing proprietary originations over secondary market purchases. Concurrently, the servicing franchise expanded through steady flow and bulk commitments, utilizing elevated short-term float yields and low note rates to hedge Agency basis volatility.
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