Solid Cash Flows: Fed Tightening

Appropriate Leverage on Highly Liquid Assets Liquid assets offer tremendous flexibility to respond to market shocks by being able to quickly adjust the size of our balance sheet. Agency RMBS TBA securities have a low bid-offer spread and can be traded in block size of $500mm to $1 billion with low market impact. • Agency CMBS and pools can be traded with bid-lists and have wide participation across fixed income investors and dealers. "After 10 years of concentrated effort in the public and private sectors, the system is now much stronger, with greater capacity to function effectively in stressful times." - Jerome Powell November 28, 2018 speech on financial stability • Financial regulators have strengthened repo market infrastructure for liquid assets to provide enhanced durability of financing versus 5 and 10 years ago. • More capital in the financial system as regulators forced banks to reduce leverage, hold more capital, increase liquidity on the balance sheet. • The Federal Reserve is more involved in the securities markets today. • Global regulators are intensely focused on coordinating to avert another systemic financial collapse. • Recent developments like the Capped Contingency Liquidity Facility and intra- day daylight overdraft protections further enhance system durability for liquid assets. DYNEX CAPITAL INC. 16

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