Financial Derivatives

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Derivatives

Financial Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages certain risks associated with its investments and borrowings, including interest rate, credit, liquidity, and foreign exchange rate risk primarily by managing the amount, sources, and duration of its investments and borrowings, and through the use of derivative financial instruments. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash receipts and its known or expected cash payments principally related to its investments and borrowings.

The following table details the fair value of the Company's holdings of financial derivatives as of December 31, 2023 and 2022:

	December 31, 2023		December 31, 2022
(In thousands)
Financial derivatives–assets, at fair value:
TBA securities purchase contracts	$	2,182	$	—
TBA securities sale contracts	—		7,985
Fixed payer interest rate swaps	101,881		116,768
Fixed receiver interest rate swaps	27,358		254
Credit default swaps on asset-backed securities	8		76
Credit default swaps on asset-backed indices	3,318		3,366
Credit default swaps on corporate bonds	25		—
Credit default swaps on corporate bond indices	7,259		83
Total return swaps	6		—
Futures	245		2,772
Forwards	12		77
Warrants	1,702		1,137
Total financial derivatives–assets, at fair value	143,996		132,518
Financial derivatives–liabilities, at fair value:
TBA securities purchase contracts	—		(2,007)
TBA securities sale contracts	(5,820)		—
Fixed payer interest rate swaps	(17,944)		(1,408)
Fixed receiver interest rate swaps	(13,801)		(48,882)
Credit default swaps on asset-backed indices	(32)		(33)
Credit default swaps on corporate bonds	(225)		(259)
Credit default swaps on corporate bond indices	(15,894)		(1,513)
Futures	(7,990)		(96)
Forwards	(70)		—
Total financial derivatives–liabilities, at fair value	(61,776)		(54,198)
Total	$	82,220	$	78,320

Interest Rate Swaps

The following tables provide information about the Company's fixed payer interest rate swaps as of December 31, 2023 and 2022:

December 31, 2023:

					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2024	$	629,547	$	9,097	3.18	%	5.41	%	0.61
2025	412,701		6,304		3.69		5.06		1.66
2026	189,287		(573)		4.13		5.39		2.66
2027	174,841		8,970		4.04		5.04		3.35
2028	650,990		7,516		3.48		5.38		4.54
2029	53,011		4,378		2.19		5.38		5.32
2030	150,817		1,122		3.50		5.39		6.59
2031	157,766		24,131		1.51		5.38		7.46
2032	181,867		11,069		2.80		5.38		8.56
2033	437,619		6,960		3.40		5.38		9.42
2035	500		132		0.78		5.33		11.81
2036	1,102		280		1.19		5.38		12.13
2037	45,000		3,780		2.81		5.38		13.66
2038	32,500		(1,727)		4.01		5.39		14.67
2040	500		165		0.90		5.33		16.82
2049	5,729		845		2.63		5.38		25.02
2050	500		207		0.98		5.33		26.82
2052	5,000		1,281		2.07		5.38		28.27
Total	$	3,129,277	$	83,937	3.34	%	5.33	%	4.68

December 31, 2022:

					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2023	$	664,398	$	13,576	0.64	%	4.51	%	0.38
2024	817,850		17,326		3.03		4.35		1.55
2025	382,793		11,747		2.89		4.32		2.51
2026	100		12		0.79		4.41		3.58
2027	264,500		8,218		3.01		4.30		4.53
2028	114,119		14,230		1.44		4.37		5.49
2029	54,428		4,485		2.45		4.65		6.31
2030	68,300		5,763		2.30		4.36		7.39
2031	161,009		23,799		1.71		4.48		8.46
2032	236,277		10,161		2.98		4.30		9.63
2035	500		142		0.78		4.33		12.81
2036	1,100		267		1.45		4.67		13.13
2037	45,000		3,578		2.81		4.30		14.66
2040	500		171		0.90		4.33		17.82
2049	5,796		630		2.89		3.74		26.02
2050	500		203		0.98		4.33		27.82
2052	5,000		1,052		2.07		4.30		29.27
Total	$	2,822,170	$	115,360	2.27	%	4.39	%	3.47

The following tables provide information about the Company's fixed receiver interest rate swaps as of December 31, 2023 and 2022:

December 31, 2023:

					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2024	$	427,234	$	(578)	5.40	%	5.17	%	0.24
2025	143,183		67		5.38		4.87		1.23
2026	461,658		(8,399)		5.39		3.58		2.28
2027	36,591		30		5.39		3.68		3.90
2028	464,799		13,357		5.39		4.33		4.64
2030	67,000		1,737		5.39		3.97		6.77
2033	198,265		7,701		5.39		3.96		9.88
2035	500		(137)		5.38		0.74		11.81
2038	36,300		131		5.39		3.54		14.98
2040	500		(173)		5.38		0.84		16.82
2050	500		(220)		5.38		0.90		26.82
2053	$	22,800	$	41	5.39		3.33		29.99
Total	$	1,859,330	$	13,557	5.39	%	4.28	%	3.93

December 31, 2022:

					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2023	$	41,407	$	(84)	4.74	%	2.00	%	0.22
2024	818,037		(25,569)		4.27		2.39		1.40
2025	328,775		(5,468)		4.30		3.48		2.84
2026	215,852		(11,312)		4.32		2.26		3.25
2027	311,007		(1,067)		4.30		3.67		4.89
2032	59,155		(4,596)		4.30		2.58		9.58
2035	500		(145)		4.30		0.74		12.81
2040	500		(175)		4.30		0.84		17.82
2050	500		(212)		4.30		0.90		27.82
Total	$	1,775,733	$	(48,628)	4.30	%	2.79	%	2.76

Credit Default Swaps

The following table provides information about the Company's credit default swaps as of December 31, 2023 and 2022:

	As of
	December 31, 2023					December 31, 2022
Type(1)	Notional		Fair Value		Weighted Average Remaining Term (Years)	Notional		Fair Value		Weighted Average Remaining Term (Years)
($ in thousands)
Asset:
Long:
Credit default swaps on asset-backed indices	$	230	$	12	13.99	$	253	$	4	14.99
Credit default swaps on corporate bonds	2,000		25		1.97	—		—		—
Credit default swaps on corporate bond indices	149,000		7,259		4.47	2,037		40		0.97
Short:
Credit default swaps on asset-backed securities	(45)		8		11.74	(220)		76		12.61
Credit default swaps on asset-backed indices	(42,101)		3,306		35.11	(58,004)		3,362		35.70
Credit default swaps on corporate bond indices	—		—		—	(1,498)		43		0.97
Liability:
Long:
Credit default swaps on asset-backed indices	60		(32)		25.22	65		(33)		26.48
Short:
Credit default swaps on corporate bonds	(13,000)		(225)		3.47	(16,400)		(259)		4.06
Credit default swaps on corporate bond indices	(537,299)		(15,894)		4.84	(165,006)		(1,513)		4.94
	$	(441,155)	$	(5,541)	7.81	$	(238,773)	$	1,720	12.35

(1)Long notional represents contracts where the Company has written protection and short notional represents contracts where the Company has purchased protection.

Futures

The following table provides information about the Company's long and short positions in futures as of December 31, 2023 and 2022:

	As of
	December 31, 2023					December 31, 2022
Description	Notional Amount		Fair Value		Remaining Months to Expiration	Notional Amount		Fair Value		Remaining Months to Expiration
	(In thousands)					(In thousands)
Assets:
Long Contracts:
U.S. Treasury futures	$	1,900	$	245	2.63	$	—	$	—	—
Short Contracts:
U.S. Treasury futures	—		—		—	(267,300)		2,772		2.70
Liabilities:
Long Contracts:
U.S. Treasury futures	—		—		—	1,900		(65)		2.70
Short Contracts:
U.S. Treasury futures	(313,100)		(7,990)		2.21	(49,800)		(31)		3.00
Total, net	$	(311,200)	$	(7,745)	2.21	$	(315,200)	$	2,676	2.75

Warrants

The following table provides information about the Company's warrants contracts to purchase shares as of December 31, 2023 and 2022:

	December 31, 2023				December 31, 2022
Description	Number of Shares Underlying Warrant	Fair Value		Remaining Years to Expiration	Number of Shares Underlying Warrant	Fair Value		Remaining Years to Expiration
	(In thousands)				(In thousands)
Warrants	202	$	1,702	5.66	3,105	$	1,137	0.77

TBAs

The Company transacts in the forward settling TBA market. Pursuant to these TBA transactions, the Company agrees to purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date. TBAs are generally liquid, have quoted market prices, and represent the most actively traded class of MBS. The Company uses TBAs to mitigate interest rate risk, usually by taking short positions. The Company also invests in TBAs as a means of acquiring additional exposure to Agency RMBS, or for investment purposes, including holding long positions.

The Company does not usually take delivery of TBAs; rather, it settles the associated receivable and payable with its trading counterparties on a net basis. Transactions with the same counterparty for the same TBA that result in a reduction of the position are treated as extinguished.

As of December 31, 2023 and 2022, the Company had outstanding TBA purchase and sale contracts as follows:

	December 31, 2023								December 31, 2022
TBA Securities	Notional Amount(1)		Cost Basis(2)		Market Value(3)		Net Carrying Value(4)		Notional Amount(1)		Cost Basis(2)		Market Value(3)		Net Carrying Value(4)
(In thousands)
Purchase contracts:
Assets	$	375,154	$	362,129	$	364,311	$	2,182	$	—	$	—	$	—	$	—
Liabilities	—		—		—		—		163,127		157,096		155,089		(2,007)
	375,154		362,129		364,311		2,182		163,127		157,096		155,089		(2,007)
Sale contracts:
Assets	—		—		—		—		(691,568)		(652,049)		(644,064)		7,985
Liabilities	(433,098)		(392,730)		(398,550)		(5,820)		—		—		—		—
	(433,098)		(392,730)		(398,550)		(5,820)		(691,568)		(652,049)		(644,064)		7,985
Total TBA securities, net	$	(57,944)	$	(30,601)	$	(34,239)	$	(3,638)	$	(528,441)	$	(494,953)	$	(488,975)	$	5,978

(1)Notional amount represents the principal balance of the underlying Agency RMBS.

(2)Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3)Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end.

(4)Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis, and is reported in Financial derivatives-assets, at fair value and Financial derivatives-liabilities, at fair value on the Consolidated Balance Sheet.

Gains and losses on the Company's derivative contracts for the years ended December 31, 2023, 2022, and 2021 are summarized in the tables below:

		Year Ended December 31, 2023
Derivative Type	Primary  Risk Exposure	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps(1)		Net Realized Gains (Losses) on Financial Derivatives(1)		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps(2)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
Interest rate swaps	Interest Rate	$	24,713	$	(1,037)	$	23,676	$	22,806	$	(19,601)	$	3,205
Credit default swaps on asset-backed securities	Credit			(665)		(665)				596		596
Credit default swaps on asset-backed indices	Credit			(1,332)		(1,332)				1,873		1,873
Credit default swaps on corporate bond indices	Credit			(4,891)		(4,891)				(1,092)		(1,092)
Credit default swaps on corporate bonds	Credit			(55)		(55)				(29)		(29)
Total return swaps	Equity Market/Credit			55		55				6		6
TBAs	Interest Rate			18,195		18,195				(9,616)		(9,616)
Futures	Interest Rate/Currency			5,847		5,847				(10,421)		(10,421)
Forwards	Currency			(468)		(468)				(136)		(136)
Warrants	Credit			(312)		(312)				566		566
Total		$	24,713	$	15,337	$	40,050	$	22,806	$	(37,854)	$	(15,048)

(1)Includes realized gain/(loss) on transactions involving foreign-currency-denominated financial derivatives in the amount of $(4) thousand for the year ended December 31, 2023, which is included on the Consolidated Statement of Operations in Other, net.

(2)Includes foreign currency remeasurement on financial derivatives in the amount of $12 thousand for the year ended December 31, 2023, which is included on the Consolidated Statement of Operations in Other, net.

		Year Ended December 31, 2022
Derivative Type	Primary  Risk Exposure	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps(1)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(1)
(In thousands)
Interest rate swaps	Interest Rate	$	4,514	$	21,549	$	26,063	$	4,134	$	46,989	$	51,123
Credit default swaps on asset-backed securities	Credit			(855)		(855)				615		615
Credit default swaps on asset-backed indices	Credit			(277)		(277)				982		982
Credit default swaps on corporate bond indices	Credit			862		862				(1,064)		(1,064)
Credit default swaps on corporate bonds	Credit			(284)		(284)				128		128
Options	Credit			147		147				148		148
TBAs	Interest Rate			73,304		73,304				5,658		5,658
Futures	Interest Rate			20,586		20,586				(4,848)		(4,848)
Forwards	Currency			1,045		1,045				285		285
Warrants	Equity Market/Credit			(102)		(102)				845		845
Total		$	4,514	$	115,975	$	120,489	$	4,134	$	49,738	$	53,872

(1)Includes foreign currency remeasurement on financial derivatives in the amount of $(19) thousand for the year ended December 31, 2022, which is included on the Consolidated Statement of Operations in Other, net.

		Year Ended December 31, 2021
Derivative Type	Primary  Risk Exposure	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps(1)		Net Realized Gains (Losses) on Financial Derivatives(1)		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps(2)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
Interest rate swaps	Interest Rate	$	(2,277)	$	644	$	(1,633)	$	(763)	$	12,051	$	11,288
Credit default swaps on asset-backed securities	Credit			34		34				(43)		(43)
Credit default swaps on asset-backed indices	Credit			931		931				(1,039)		(1,039)
Credit default swaps on corporate bond indices	Credit			(330)		(330)				(963)		(963)
Credit default swaps on corporate bonds	Credit			256		256				(345)		(345)
Total return swaps	Credit			(1,242)		(1,242)				476		476
Options	Credit			(356)		(356)				(148)		(148)
TBAs	Interest Rate			8,020		8,020				283		283
Futures	Interest Rate			4,656		4,656				776		776
Forwards	Currency			1,183		1,183				73		73
Warrants	Equity Market/Credit			—		—				(46)		(46)
Total		$	(2,277)	$	13,796	$	11,519	$	(763)	$	11,075	$	10,312

(1)Includes realized gain/(loss) on transactions involving foreign-currency-denominated financial derivatives in the amount of $18 thousand for the year ended December 31, 2021, which is included on the Consolidated Statement of Operations in Other, net.

(2)Includes foreign currency remeasurement on financial derivatives in the amount of $(43) thousand for the year ended December 31, 2021, which is included on the Consolidated Statement of Operations in Other, net.

The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the years ended December 31, 2023 and 2022:

Derivative Type	Year Ended December 31, 2023		Year Ended December 31, 2022
(In thousands)
Interest rate swaps	$	4,309,089	$	3,292,243
TBAs	603,206		796,003
Credit default swaps	497,857		130,819
Futures	246,669		186,446
Forwards	15,567		13,676
Warrants	1,926		3,378
Total return swaps	875		688
Options	—		13,846

From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives"). As of December 31, 2023 and 2022, all of the Company's open written credit derivatives were credit default swaps on either mortgage/asset-backed indices (ABX and CMBX indices) or corporate bond indices (CDX), collectively referred to as credit indices, or on individual corporate bonds, for which the Company receives periodic payments at fixed rates from credit protection buyers, and is obligated to make payments to the credit protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets.

Written credit derivatives held by the Company at December 31, 2023 and 2022 are summarized below:

Credit Derivatives	December 31, 2023		December 31, 2022
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	7,264	$	11
Notional Value of Written Credit Derivatives(1)	151,290		2,355

(1)The notional value is the maximum amount that a seller of credit protection would be obligated to pay, and a buyer of credit protection would receive, upon occurrence of a "credit event." Movements in the value of credit default swap transactions may require the Company or the counterparty to post or receive collateral. Amounts due or owed under credit derivative contracts with an International Swaps and Derivatives Association, or "ISDA," counterparty may be offset against amounts due or owed on other credit derivative contracts with the same ISDA counterparty. As a result, the notional value of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional value of any contracts where the Company has purchased credit protection on the same reference asset or index with the same ISDA counterparty.

A credit default swap on a credit index or a corporate bond typically terminates at the stated maturity date in the case of corporate indices or bonds, or, in the case of ABX and CMBX indices, the date that all of the reference assets underlying the index are paid off in full, retired, or otherwise cease to exist. Implied credit spreads may be used to determine the market value of such contracts and are reflective of the cost of buying/selling credit protection. Higher spreads would indicate a greater likelihood that a seller will be obligated to perform (i.e., make protection payments) under the contract. In situations where the credit quality of the underlying reference assets has deteriorated, the percentage of notional values that would be paid up front to enter into a new such contract ("points up front") is frequently used as an indication of credit risk. Credit protection sellers entering the market in such situations would expect to be paid points up front corresponding to the approximate fair value of the contract. As of December 31, 2023, the implied credit spread on the Company's outstanding written credit derivative ranged between 51 and 438 basis points; as of December 31, 2022, implied credit spread on the Company's written credit derivative was 310 basis points. Excluded from these spread ranges are contracts outstanding for which the individual spread is greater than 2,000 basis points. The Company believes that these contracts would be quoted based on estimated points up front. The total fair value of contracts with individual implied credit spreads in excess of 2,000 basis points was $(32) thousand and $(33) thousand as of December 31, 2023 and 2022, respectively. Estimated points up front on these contracts as of December 31, 2023 was 46.3 and as of December 31, 2022 ranged between 46.3 and 88.8. Total net up-front payments (paid) or received relating to written credit derivatives outstanding as of December 31, 2023 and 2022 was $(1.6) million and $0.8 million, respectively.