DERIVATIVE INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summarizes Fair Value Information about Derivative Assets Liabilities

March 31, 2019 and December 31, 2018:

Derivatives Instruments	March 31, 2019		December 31, 2018
Assets	(dollars in thousands)
Interest rate swaps	$	26,020	$	48,114
Interest rate swaptions	8,250		7,216
TBA derivatives	106,960		141,688
Futures contracts	357		—
Purchase commitments	2,434		844
Credit derivatives (1)	4,157		2,641
	$	148,178	$	200,503
Liabilities
Interest rate swaps	$	509,485	$	420,365
TBA derivatives	5,212		—
Futures contracts	260,354		462,309
Purchase commitments	478		33
Credit derivatives (1)	451		7,043
	$	775,980	$	889,750

⁽¹⁾  The notional amount of the credit derivatives in which the Company purchased protection was $45.0 million and $30.0 million at March 31, 2019 and December 31, 2018, respectively. The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $346.0 million and $451.0 million at March 31, 2019 and December 31, 2018, respectively, plus any coupon shortfalls on the underlying tranche. The credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and BBB-.

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2019 and December 31, 2018:

March 31, 2019
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	32,201,400	1.93	%	2.66	%	1.46
3 - 6 years	13,567,000		2.12	%	2.63	%	4.22
6 - 10 years	18,112,000		2.52	%	2.70	%	8.94
Greater than 10 years	3,578,000		3.59	%	2.58	%	17.81
Total / Weighted average	$	67,458,400	2.20	%	2.66	%	4.77
December 31, 2018
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	31,900,200	1.84	%	2.73	%	1.21
3 - 6 years	16,603,200		2.29	%	2.70	%	4.30
6 - 10 years	18,060,900		2.57	%	2.56	%	8.62
Greater than 10 years	3,901,400		3.63	%	2.59	%	17.33
Total / Weighted average	$	70,465,700	2.17	%	2.68	%	4.26

⁽¹⁾ There were no forward starting swaps at March 31, 2019 and December 31, 2018.

The following table presents swaptions outstanding at March 31, 2019 and December 31, 2018.

March 31, 2019
	Current Underlying Notional	Weighted Average Underlying Pay Rate	Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long	$2,800,000	3.12%	3M LIBOR	10.33	6.70
December 31, 2018
	Current Underlying Notional	Weighted Average Underlying Pay Rate	Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long	$4,075,000	3.30%	3M LIBOR	10.08	3.06

The following table summarizes certain characteristics of the Company’s TBA derivatives at March 31, 2019 and December 31, 2018:

March 31, 2019
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	15,526,000	$	15,779,271	$	15,881,019	101,748
December 31, 2018
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	13,803,000	$	13,823,109	$	13,964,797	141,688

The following table summarizes certain characteristics of the Company’s futures derivatives at March 31, 2019 and December 31, 2018:

March 31, 2019
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
2-year swap equivalent Eurodollar contracts	$	—	$	(2,500,000	)	2.00
U.S. Treasury futures - 2 year	—		(2,872,400		)	1.93
U.S. Treasury futures - 5 year	—		(6,469,400		)	4.39
U.S. Treasury futures - 10 year and greater	109,000		(9,589,900		)	6.84
Total	$	109,000	$	(21,431,700	)	4.89
December 31, 2018
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	—		(1,166,000		)	1.97
U.S. Treasury futures - 5 year	—		(6,359,400		)	4.39
U.S. Treasury futures - 10 year and greater	—		(11,152,600		)	7.10
Total	$	—	$	(18,678,000	)	5.86

Offsetting of Derivative Assets and Liabilities

March 31, 2019 and December 31, 2018, respectively.

March 31, 2019
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	26,020	$	(14,498	)	$	—		$	11,522
Interest rate swaptions, at fair value	8,250		—			—			8,250
TBA derivatives, at fair value	106,960		(5,212		)	—			101,748
Futures contracts, at fair value	357		(33		)	—			324
Purchase commitments	2,434		—			—			2,434
Credit derivatives	4,157		(451		)	—			3,706
Liabilities
Interest rate swaps, at fair value	$	509,485	$	(14,498	)	$	(41,756	)	$	453,231
TBA derivatives, at fair value	5,212		(5,212		)	—			—
Futures contracts, at fair value	260,354		(33		)	(260,321		)	—
Purchase commitments	478		—			—			478
Credit derivatives	451		(451		)	—			—
December 31, 2018
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	48,114	$	(29,308	)	$	—		$	18,806
Interest rate swaptions, at fair value	7,216		—			—			7,216
TBA derivatives, at fair value	141,688		—			—			141,688
Purchase commitments	844		—			—			844
Credit derivatives	2,641		(2,641		)	—			—
Liabilities
Interest rate swaps, at fair value	$	420,365	$	(29,308	)	$	(11,856	)	$	379,201
Futures contracts, at fair value	462,309		—			(462,309		)	—
Purchase commitments	33		—			—			33
Credit derivatives	7,043		(2,641		)	(4,402		)	—

Schedule of Derivative Instruments in Statement of Operations and Comprehensive Income Loss

The effect of interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss) is as follows:

Location on Consolidated Statements of Comprehensive Income (Loss)
	Net Interest Component of Interest Rate Swaps			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
For the three months ended	(dollars in thousands)
March 31, 2019	$	134,035		$	(588,256	)	$	(390,556	)
March 31, 2018	$	(48,160	)	$	834		$	977,285

Effect of Other Derivative Contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss)

The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:

Three Months Ended March 31, 2019
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	213,725		$	(39,940	)	$	173,785
Net interest rate swaptions	(29,992		)	19,684			(10,308		)
Futures	(491,741		)	202,312			(289,429		)
Purchase commitments	—			1,145			1,145
Credit derivatives	2,302			7,346			9,648
Total							$	(115,159	)

Three Months Ended March 31, 2018
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(277,901	)	$	17,917		$	(259,984	)
Net interest rate swaptions	(21,434		)	67,221			45,787
Futures	495,013			(328,512		)	166,501
Purchase commitments	—			366			366
Credit derivatives	1,513			(1,328		)	185
Total							$	(47,145	)