Interest Rate Fluctuation Risk: Rapid or significant changes in short-term or long-term interest rates can compress the company's net interest margin, as their profitability relies on the spread between the interest earned on their mortgage-backed securities (MBS) and their funding costs.

Leverage and Margin Call Exposure: Dynex Capital employs significant leverage to enhance returns. This amplifies both gains and losses and exposes the company to margin calls if the value of their collateralized assets declines, potentially forcing them to sell assets at unfavorable times.

Mortgage Prepayment Impact: When interest rates fall, homeowners are more likely to refinance their mortgages, leading to accelerated prepayments of the MBS held by Dynex. This reduces the yield on their portfolio and requires reinvestment at potentially lower prevailing rates.