Company: TWO-PC
Filing Date: 2025-10-28
Form Type: 10-Q
Source: 0001465740-25-000152
Chunk: 75

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-10-28
Form: 10-Q
Item: Item 1
Chunk 75
---
 estimate fair value for AFS securities, MSR and derivative instruments may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value. Furthermore, 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 Part I, 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 Part I, Item 1 of this Quarterly Report on Form 10-Q.

Market Conditions and Outlook

Performance across the fixed income market was positive in the third quarter of 2025, as the Federal Reserve, or the Fed, delivered a widely anticipated 25 basis point cut to its benchmark rate at its September meeting, the first interest rate cut since November 2024. Though inflation readings continued to run above the Fed’s target, and the full impact of recent increases to tariffs on forward inflation remained unclear, the Fed cut rates in response to emerging downside risks in the labor market, as Chairman Powell outlined in his remarks after the conclusion of the Fed’s September meeting. The Fed’s own guidance of another 50 basis points of cuts before the end of 2025 aligned with market consensus. Net changes across the yield curve for U.S. Treasuries were minimal over the quarter, with 2-year Treasury yields down 11 basis points to 3.61% and 10-year Treasury yields down 8 basis points to 4.15%. Equity markets were also buoyed by Fed’s benchmark rate cut, with the S&P 500 up by 7.8% by quarter-end after setting all-time record highs earlier in the quarter.

Given the stability of interest rates and broad consensus that the Fed is on a gradual path to lowering rates further, implied volatility declined to its lowest level since mid-2022. The implied volatility of 2-year options on 10-year swap rates closed the quarter at 84 basis points, down