DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about the Company’s derivative assets and liabilities at June 30, 2023 and December 31, 2022:

Derivatives Instruments	June 30, 2023		December 31, 2022
Assets	(dollars in thousands)
Interest rate swaps	$	30,026	$	33,006
Interest rate swaptions	264,406		256,991
TBA derivatives	21,460		17,056
Futures contracts	139,108		33,179
Purchase commitments	2,119		1,832
Total derivative assets	$	457,119	$	342,064
Liabilities
Interest rate swaps	$	96,618	$	108,724
TBA derivatives	19,187		69,270
Futures contracts (1)	37,049		11,919
Purchase commitments	3,328		460
Credit derivatives (2)	—		13,799
Total derivative liabilities	$	156,182	$	204,172
(1) As of June 30, 2023, this includes $36.4 million of SOFR futures options. (2) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $420.0 million at December 31, 2022, plus any coupon shortfalls on the underlying tranche. As of December 31, 2022 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.

Summary of Certain Characteristics of Derivatives

The following tables summarize certain characteristics of the Company’s interest rate swaps at June 30, 2023 and December 31, 2022:

June 30, 2023
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	$	21,617,608	2.02	%	5.01	%	0.89
3 - 6 years	7,464,799		2.96	%	5.06	%	4.57
6 - 10 years	27,823,637		2.72	%	5.12	%	8.10
Greater than 10 years	2,081,060		3.71	%	4.84	%	24.43
Total / Weighted average	$	58,987,104	2.50	%	5.05	%	5.58
December 31, 2022
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	$	26,355,700	0.88	%	4.33	%	0.75
3 - 6 years	1,120,400		2.53	%	3.95	%	4.07
6 - 10 years	22,492,200		2.54	%	4.24	%	8.76
Greater than 10 years	2,309,000		3.49	%	4.26	%	22.93
Total / Weighted average	$	52,277,300	1.74	%	4.28	%	5.25
(1) As of June 30, 2023, 12%, 12% and 76% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the SOFR, respectively. As of December 31, 2022, 17%, 23% and 60% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the SOFR, respectively. (2) As of June 30, 2023, notional amount includes $734.0 million of forward starting pay fixed swaps. There were no forward starting swaps at December 31, 2022. (3) 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 tables summarize certain characteristics of the Company’s swaptions at June 30, 2023 and December 31, 2022:

June 30, 2023
	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	$2,500,000	2.02%	3M LIBOR	7.69	8.25
Long receive	$750,000	1.57%	3M LIBOR	10.57	6.79
December 31, 2022
	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	$2,500,000	2.02%	3M LIBOR	8.19	14.28
Long receive	$750,000	1.57%	3M LIBOR	11.07	12.82

The following tables summarize certain characteristics of the Company’s TBA derivatives at June 30, 2023 and December 31, 2022:

June 30, 2023
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	5,649,000	$	5,537,076	$	5,519,589	$	(17,487)
Sale contracts	(1,915,000)		(1,911,633)		(1,891,873)		19,760
Net TBA derivatives	$	3,734,000	$	3,625,443	$	3,627,716	$	2,273
December 31, 2022
(dollars in thousands)
Purchase contracts	$	10,589,000	$	10,675,739	$	10,623,350	$	(52,389)
Sale contracts	(44,000)		(44,849)		(44,674)		175
Net TBA derivatives	$	10,545,000	$	10,630,890	$	10,578,676	$	(52,214)

The following tables summarize certain characteristics of the Company’s futures derivatives at June 30, 2023 and December 31, 2022: 

June 30, 2023
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(9,071,400)	1.97
U.S. Treasury futures - 5 year	98,000		—		4.39
U.S. Treasury futures - 10 year and greater	—		(2,439,800)		8.01
Total	$	98,000	$	(11,511,200)	3.26
December 31, 2022
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(8,518,400)	1.96
U.S. Treasury futures - 5 year	—		(5,803,400)		4.37
U.S. Treasury futures - 10 year and greater	—		(6,866,900)		8.15
Total	$	—	$	(21,188,700)	4.63

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 in our Consolidated Statements of Financial Condition at June 30, 2023 and December 31, 2022, respectively.

June 30, 2023
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	30,026	$	(23,168)	$	—	$	6,858
Interest rate swaptions, at fair value	264,406		(113,023)		(147,234)		4,149
TBA derivatives, at fair value	21,460		(1,699)		—		19,761
Futures contracts, at fair value	139,108		(24,822)		—		114,286
Purchase commitments	2,119		—		—		2,119
Liabilities
Interest rate swaps, at fair value	$	96,618	$	(57,398)	$	—	$	39,220
TBA derivatives, at fair value	19,187		(16,480)		(1,761)		946
Futures contracts, at fair value (1)	37,049		(24,822)		(12,227)		—
Purchase commitments	3,328		—		—		3,328
December 31, 2022
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	33,006	$	(24,625)	$	—	$	8,381
Interest rate swaptions, at fair value	256,991		—		—		256,991
TBA derivatives, at fair value	17,056		(16,875)		—		181
Futures contracts, at fair value	33,179		(2,414)		—		30,765
Purchase commitments	1,832		—		—		1,832
Liabilities
Interest rate swaps, at fair value	$	108,724	$	(24,625)	$	(1,251)	$	82,848
TBA derivatives, at fair value	69,270		(16,875)		—		52,395
Futures contracts, at fair value	11,919		(2,414)		(9,505)		—
Purchase commitments	460		—		—		460
Credit derivatives	13,799		—		(9,291)		4,508
(1) As of June 30, 2023, this includes $36.4 million of SOFR futures options.

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

The effect of interest rate swaps in 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 (1)		Realized Gains (Losses) on Termination of Interest Rate Swaps (1)		Unrealized Gains (Losses) on Interest Rate Swaps (1)
For the three months ended	(dollars in thousands)
June 30, 2023	$	425,293	$	48,148	$	841,702
June 30, 2022	$	992	$	(16)	$	897,537
For the six months ended
June 30, 2023	$	810,999	$	(97,671)	$	(114,570)
June 30, 2022	$	(61,549)	$	(16)	$	2,220,976
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

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

Three Months Ended June 30, 2023
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	99,361	$	(160,873)	$	(61,512)
Net interest rate swaptions	—		53,413		53,413
Futures (1)	(242,013)		413,240		171,227
Purchase commitments	—		(3,444)		(3,444)
Credit derivatives	(17,970)		18,468		498
Total					$	160,182
(1) For the three months ended June 30, 2023, this includes $18.8 million of unrealized loss related to SOFR futures options.

Three Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,064,242)	$	280,992	$	(783,250)
Net interest rate swaptions	—		119,436		119,436
Futures	1,167,524		(380,436)		787,088
Purchase commitments	—		2,671		2,671
Credit derivatives	374		(9,189)		(8,815)
Total					$	117,130

Six Months Ended June 30, 2023
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	$	(54,488)	$	54,487	$	(1)
Net interest rate swaptions	2,323		7,415		9,738
Futures (1)	(123,681)		98,362		(25,319)
Purchase commitments	—		(2,581)		(2,581)
Credit derivatives	(19,282)		13,260		(6,022)
Total					$	(24,185)
(1) For the six months ended June 30, 2023, this includes $18.8 million of unrealized loss related to SOFR futures options.

Six Months Ended June 30, 2022
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	$	(1,820,381)	$	(79,239)	$	(1,899,620)
Net interest rate swaptions	(14,450)		242,058		227,608
Futures	1,720,678		458,516		2,179,194
Purchase commitments	—		2,172		2,172
Credit derivatives	1,434		(12,528)		(11,094)
Total					$	498,260