Company: TWO-PC
Filing Date: 2025-04-29
Form Type: 10-Q
Source: 0001465740-25-000104
Chunk: 75

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-04-29
Form: 10-Q
Item: Item 1
Chunk 75
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 while we believe that our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. We use prices obtained from third-party pricing vendors or broker quotes deemed indicative of market activity and current as of the measurement date, which in periods of market dislocation, may have reduced transparency. For more information on our fair value measurements, see Note 12 - Fair Value to the consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q. Additionally, the key economic assumptions and sensitivity of the fair value of MSR to immediate adverse changes in these assumptions are presented in Note 6 - Servicing Activities to the consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q.

Market Conditions and Outlook

Interest rates across the U.S. Treasury yield curve ended the first quarter of 2025 modestly lower compared to 2024 year-end, with 2-year and 10-year notes both decreasing by 36 basis points to finish at 3.88% and 4.21%, respectively. Data on inflation and employment during the quarter was largely overshadowed by growing economic uncertainty driven by U.S. policy developments on tariffs, government employment and spending, and international security agreements. The markets priced in a negative growth outlook as a result of the U.S. Administration’s aggressive stance on tariffs, with stickier or even higher near-term inflation expectations. Confidence deteriorated sharply across consumers, businesses, and financial markets, as reflected by the significant declines in survey-based data metrics.

The Fed held rates unchanged at their January and March meetings, but revised lower real GDP growth expectations for 2025 from 2.1% to 1.7%, while the core personal consumption expenditures index was revised up from 2.5% to 2.8%, changes which Chairman Powell attributed to the changes in trade policies proposed by the U.S. Administration. As of March 31, 2025, the market’s expectations for cuts for the remainder of 2025 moved from 50 to 75 basis points.

The performance of Agency RMBS securities was net positive for the quarter. Agency RMBS outperformed interest rate hedges in January and February but underperformed in March as equities and other spread products weakened. The performance across the coupon stack was uneven, with higher coupons, both in TBA and specified pools, outperforming longer duration