Solid Cash Flows: Fed Tightening

Macro Economic Themes Fragile Economic Growth and Low Inflation • A key element of our macro thesis is that the global economy is fragile because growth has been driven by enormous accumulation of global debt and extraordinary central bank intervention. This is happening at a time when global risks are intensifying. • We believe the ability for interest rates to rise rapidly and remain elevated over the long term is limited, driven by central banks, global debt and demographic trends. • Central banks have expressed a desire (and the Fed has attempted) to remove the extraordinary stimulus applied for the global economy to recover from the 2008 financial crisis. The Fed has been unable to continue tightening without negatively impacting growth and financial markets. • At Dynex we have always believed the Fed is data dependent as they have often historically been. • While the demographic trend of global aging is a significant headwind against growth, higher rates and inflation, it creates a sustained demand for cash yield. • Continued central bank support of economies also supports demand for risk assets. • Bouts of volatility must be used to deploy capital when market dislocations create opportunity. • The ECB and Fed have all reversed their course towards quantitative tightening. The BoJ and PBoC are firmly in the camp of adding liquidity to their respective economies to stimulate or maintain growth and inflation trajectories. • Unpredictable government policies inject considerable uncertainty and raise the probability of surprise events that impact markets. • These factors amongst others have led to slowing global growth and inflation below central bank targets. DYNEX CAPITAL INC. 8

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