Company: TWO-PC
Filing Date: 2025-07-29
Form Type: 10-Q
Source: 0001465740-25-000140
Chunk: 250

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-07-29
Form: 10-Q
Item: Item 8
Chunk 250
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 and derivative instruments.

The methods used by us to 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 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

Fixed-income and equity markets proved resilient in the second quarter, rebounding from poor performance early in the quarter as the uncertainty of fluctuating tariff and trade policies unsettled markets, spiking the Chicago Board Options Exchange's Volatility Index to a multi-year high. As the quarter progressed, tariff tensions eased and the macro environment recovered steadily, leading the S&P 500 to a record high, returning 10.6% over the quarter. Similarly, yields for U.S. Treasuries initially increased, with the 10-year Treasury yield rising by about 60 basis points but finished the quarter with a net increase of only 2 basis points at 4.23%. The yield curve for U.S. Treasuries steepened, with the 2-year Treasury yield falling from 3.88% to 3.72%, or 16 basis points. 

The Federal Reserve, or the Fed, left interest rates unchanged at both their May and June meetings, as benign readings on employment and inflation did not justify any immediate action and the potential inflationary impact of tariffs provided further justification to not lower rates prematurely. By quarter-end, Federal Funds futures implied over a 90% chance of an interest rate cut by the Fed in September, with the median forecast in the Fed’s own projections remaining unchanged at two cuts for 2025.

The performance of Agency RMBS tracked the pattern of the equity markets over the quarter,