DERIVATIVE INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2020

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 March 31, 2020 and December 31, 2019:

Derivatives Instruments	March 31, 2020		December 31, 2019
Assets	(dollars in thousands)
Interest rate swaps	$	—	$	1,199
Interest rate swaptions	58,468		11,580
TBA derivatives	180,307		15,181
Futures contracts	—		77,889
Purchase commitments	1		2,050
Credit derivatives (1)	—		5,657
	$	238,776	$	113,556
Liabilities
Interest rate swaps	$	1,244,309	$	706,862
TBA derivatives	15,747		11,316
Futures contracts	—		84,781
Purchase commitments	9,666		907
Credit derivatives (1)	61,466		—
	$	1,331,188	$	803,866

⁽¹⁾ 

The notional amount of the credit derivatives in which the Company purchased protection was $0.0 and $10.0 million at March 31, 2020 and December 31, 2019, respectively. The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $525.0 million and $345.0 million at March 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019:

 

March 31, 2020
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	1,459,400	1.41	%	1.03	%	2.98
3 - 6 years	1,310,400		1.47	%	0.93	%	2.97
6 - 10 years	7,949,500		1.91	%	1.56	%	8.73
Greater than 10 years	2,249,000		3.42	%	1.21	%	17.54
Total / Weighted average	$	12,968,300	1.63	%	1.16	%	9.03
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

⁽¹⁾ As of March 31, 2020, 31%, 64% and 5% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. 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.

⁽²⁾ There were no forward starting swaps at March 31, 2020 and December 31, 2019.

⁽³⁾ As of March 31, 2020, the weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed.

The following table presents swaptions outstanding at March 31, 2020 and December 31, 2019.

March 31, 2020
	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	$3,675,000	2.54%	3M LIBOR	9.40	2.41
Long receive	$750,000	1.50%	3M LIBOR	10.42	4.88
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

The following table summarizes certain characteristics of the Company’s TBA derivatives at March 31, 2020 and December 31, 2019:

March 31, 2020
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	12,581,000		$	12,951,197		$	13,115,757		$	164,560
Net TBA derivatives	$	12,581,000		$	12,951,197		$	13,115,757		$	164,560
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

The following table summarizes certain characteristics of the Company’s futures derivatives at December 31, 2019. There were no futures derivatives at March 31, 2020:

 

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

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 March 31, 2020 and December 31, 2019, respectively.

March 31, 2020
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets	(dollars in thousands)
Interest rate swaptions, at fair value	$	58,468	$	—		$	—		$	58,468
TBA derivatives, at fair value	180,307		(15,747		)	—			164,560
Purchase commitments	1		—			—			1
Liabilities
Interest rate swaps, at fair value	$	1,244,309	$	—		$	(162,668	)	$	1,081,641
TBA derivatives, at fair value	15,747		(15,747		)	—			—
Purchase commitments	9,666		—			—			9,666
Credit derivatives	61,466		—			(48,845		)	12,621
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

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, 2020	$	(13,980	)	$	(397,561	)	$	(2,827,723	)
March 31, 2019	$	134,035		$	(588,256	)	$	(390,556	)

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

Three Months Ended March 31, 2020
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	$	271,085		$	160,695		$	431,780
Net interest rate swaptions	51,445			70,133			121,578
Futures	(279,476		)	6,892			(272,584		)
Purchase commitments	—			(10,809		)	(10,809		)
Credit derivatives	1,925			(65,464		)	(63,539		)
Total							$	206,426

 

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	)