DERIVATIVE INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about our derivative assets and liabilities at December 31, 2019 and 2018:

Derivatives Instruments	December 31, 2019		December 31, 2018
Assets	(dollars in thousands)
Interest rate swaps	$	1,199	$	48,114
Interest rate swaptions	11,580		7,216
TBA derivatives	15,181		141,688
Futures contracts	77,889		—
Purchase commitments	2,050		844
Credit derivatives (1)	5,657		2,641
	$	113,556	$	200,503
Liabilities
Interest rate swaps	$	706,862	$	420,365
TBA derivatives	11,316		—
Futures contracts	84,781		462,309
Purchase commitments	907		33
Credit derivatives (1)	—		7,043
	$	803,866	$	889,750

⁽¹⁾ 

The notional amount of the credit derivatives in which the Company purchased protection was $10.0 million and $30.0 million at December 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 $345.0 million and $451.0 million at December 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 AA and BBB-.

Summary of Certain Characteristics of Derivatives

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

 

December 31, 2019
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	38,942,400	1.60	%	1.84	%	1.29
3 - 6 years	16,097,450		1.77	%	1.87	%	4.30
6 - 10 years	16,176,500		2.20	%	2.02	%	9.00
Greater than 10 years	2,930,000		3.76	%	1.86	%	17.88
Total / Weighted average	$	74,146,350	1.84	%	1.89	%	4.23
December 31, 2018
Maturity	Current Notional (1)(2)		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⁾ As of December 31, 2019, 75% and 25% of the Company’s interest rate swaps were linked to LIBOR and the overnight index swap rate, respectively. As of December 31, 2018, all of the Company’s interest rate swaps were linked to LIBOR.

⁽²⁾ There were no forward starting swaps at December 31, 2019 and December 31, 2018.

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

December 31, 2019
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,675,000	2.53%	3M LIBOR	9.22	4.66
Long receive	$2,000,000	1.49%	3M LIBOR	10.29	3.40
December 31, 2018
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,075,000	3.30%	3M LIBOR	10.08	3.06

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

December 31, 2019
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	10,043,000		$	10,182,891		$	10,192,038		$	9,147
Sale contracts	(3,144,000		)	(3,294,486		)	(3,299,768		)	(5,282		)
Net TBA derivatives	$	6,899,000		$	6,888,405		$	6,892,270		$	3,865
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 December 31, 2019 and 2018:

 

December 31, 2019
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(180,000	)	1.96
U.S. Treasury futures - 5 year	—		(2,953,300		)	4.42
U.S. Treasury futures - 10 year and greater	2,600,000		(5,806,400		)	9.74
Total	$	2,600,000	$	(8,939,700	)	8.26
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

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset on our Consolidated Statements of Financial Condition at December 31, 2019 and 2018, respectively.

December 31, 2019
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	1,199	$	(951	)	$	—		$	248
Interest rate swaptions, at fair value	11,580		—			—			11,580
TBA derivatives, at fair value	15,181		(5,018		)	—			10,163
Futures contracts, at fair value	77,889		(10,902		)	—			66,987
Purchase commitments	2,050		—			—			2,050
Credit derivatives	5,657		—			—			5,657
Liabilities
Interest rate swaps, at fair value	$	706,862	$	(951	)	$	(104,205	)	$	601,706
TBA derivatives, at fair value	11,316		(5,018		)	—			6,298
Futures contracts, at fair value	84,781		(10,902		)	(73,879		)	—
Purchase commitments	907		—			—			907
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 years ended	(dollars in thousands)
December 31, 2019	$	351,375		$	(1,442,964	)	$	(1,210,276	)
December 31, 2018	$	100,553		$	1,409		$	424,081
December 31, 2017	$	(371,108	)	$	(160,133	)	$	512,918

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:

Year Ended December 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	$	464,575		$	(137,823	)	$	326,752
Net interest rate swaptions	(47,863		)	(15,961		)	(63,824		)
Futures	(1,418,143		)	455,417			(962,726		)
Purchase commitments	—			333			333
Credit derivatives	8,077			10,618			18,695
Total							$	(680,770	)

 

Year Ended December 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	$	(343,594	)	$	134,397		$	(209,197	)
Net interest rate swaptions	(98,248		)	2,679			(95,569		)
Futures	564,418			(668,384		)	(103,966		)
Purchase commitments	—			1,002			1,002
Credit derivatives	9,662			(5,945		)	3,717
Total							$	(404,013	)