DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about our derivative assets and liabilities as of June 30, 2017 and December 31, 2016:

Derivatives Instruments	Balance Sheet Location	June 30, 2017		December 31, 2016
Assets:		(dollars in thousands)
Interest rate swaps	Interest rate swaps, at fair value	$	10,472	$	68,194
Interest rate swaptions	Other derivatives, at fair value		21,328		-
TBA derivatives	Other derivatives, at fair value		8,567		2,774
Futures contracts	Other derivatives, at fair value		124,109		168,209
Purchase commitments	Other derivatives, at fair value		-		283
		$	164,476	$	239,460
Liabilities:
Interest rate swaps	Interest rate swaps, at fair value	$	614,589	$	1,443,765
TBA derivatives	Other derivatives, at fair value		56,529		60,972
Futures contracts	Other derivatives, at fair value		42,103		24,912
Purchase commitments	Other derivatives, at fair value		11		553
Credit derivatives	Other derivatives, at fair value		737		-
		$	713,969	$	1,530,202

Offsetting of Derivative Assets and Liabilities

The following tables present information about derivative assets and liabilities that are subject to such provisions and can potentially be offset on our Consolidated Statements of Financial Condition as of June 30, 2017 and December 31, 2016, respectively.

June 30, 2017			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value (1)	$	10,472	$	(9,282	)	$	-		$	1,190
Interest rate swaptions, at fair value		21,328		-			-			21,328
TBA derivatives, at fair value		8,567		(1,969	)		-			6,598
Futures contracts, at fair value		124,109		(42,103	)		-			82,006
Liabilities:
Interest rate swaps, at fair value (1)	$	614,589	$	(9,282	)	$	-		$	605,307
TBA derivatives, at fair value		56,529		(1,969	)		-			54,560
Futures contracts, at fair value		42,103		(42,103	)		-			-
Purchase commitments		11		-			-			11
Credit derivatives		737		-			-			737
December 31, 2016			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	68,194	$	(68,194	)	$	-		$	-
TBA derivatives, at fair value		2,774		(2,172	)		-			602
Futures contracts, at fair value		168,209		(24,912	)		-			143,297
Purchase commitments		283		-			-			283
Liabilities:
Interest rate swaps, at fair value	$	1,443,765	$	(68,194	)	$	(768,877	)	$	606,694
TBA derivatives, at fair value		60,972		(2,172	)		-			58,800
Futures contracts, at fair value		24,912		(24,912	)		-			-
Purchase commitments		553		-			-			553

⁽¹⁾ As a result of a change to a clearing organization’s rulebook effective January 3, 2017, beginning with the first quarter 2017 and in subsequent periods the Company is presenting the fair value of centrally cleared interest rate swaps net of variation margin pledged under such transactions. The variation margin was previously reported under cash and cash equivalents and is currently reported as a reduction to interest rate swaps, at fair value.

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)
	Realized Gains (Losses) on Interest Rate Swaps(1)			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
	(dollars in thousands)
Three Months Ended:
June 30, 2017	$	(96,470	)	$	(58	)	$	(177,567	)
June 30, 2016	$	(130,762	)	$	(60,064	)	$	(373,220	)
Six Months Ended:
June 30, 2017	$	(200,626	)	$	(58	)	$	(28,383	)
June 30, 2016	$	(278,237	)	$	(60,064	)	$	(1,404,940	)

⁽¹⁾ Interest expense related to the Company's interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

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 June 30, 2017
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	165,777		$	(72,844	)	$	92,933
Net interest rate swaptions		-			(10,438	)		(10,438	)
Futures		(59,397	)		(37,588	)		(96,985	)
Purchase commitments		-			8			8
Credit derivatives		136			(77	)		59
							$	(14,423	)
Three Months Ended June 30, 2016
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	98,371		$	60,758		$	159,129
Futures		8,314			(85,563	)		(77,249	)
							$	81,880
Six Months Ended June 30, 2017
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	105,463		$	10,237		$	115,700
Net interest rate swaptions		-			(10,438	)		(10,438	)
Futures		(58,424	)		(61,292	)		(119,716	)
Purchase commitments		-			272			272
Credit derivatives		136			(77	)		59
							$	(14,123	)
Six Months Ended June 30, 2016
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	318,363		$	145,052		$	463,415
Futures		(122,680	)		(133,683	)		(256,363	)
							$	207,052

⁽¹⁾    Includes options on TBA contracts.

Interest Rate Swaps

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2017 and December 31, 2016:

June 30, 2017
Maturity	Current Notional (1)		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	4,642,000		1.43	%		1.34	%		2.51
3 - 6 years		11,476,000		2.16	%		1.22	%		4.05
6 - 10 years		8,558,650		2.43	%		1.32	%		7.56
Greater than 10 years		3,926,400		3.62	%		1.20	%		18.75
Total / Weighted Average	$	28,603,050		2.26	%		1.28	%		6.58
December 31, 2016
Maturity	Current Notional (1)		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	3,444,365		1.37	%		1.00	%		2.71
3 - 6 years		10,590,000		1.92	%		0.99	%		3.94
6 - 10 years		8,206,900		2.35	%		1.10	%		7.82
Greater than 10 years		3,634,400		3.70	%		0.83	%		18.36
Total / Weighted Average	$	25,875,665		2.22	%		1.02	%		6.87

⁽¹⁾ There were no forward starting swaps as of June 30, 2017 and December 31, 2016.

Interest Rate Swaption

Summary of Certain Characteristics of Derivatives

The following table presents swaptions outstanding as of June 30, 2017. There were no swaptions as of December 31, 2016.

June 30, 2017	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	$	2,000,000		2.56	%	3M LIBOR		9.42		8.00

Futures Contracts

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s futures derivatives as of June 30, 2017 and December 31, 2016:

	June 30, 2017
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
2-year swap equivalent Eurodollar contracts	$	-	$	(16,363,250	)		2.00
U.S. Treasury futures - 5 year		-		(3,437,200	)		4.42
U.S. Treasury futures - 10 year and greater		-		(3,275,000	)		7.08
Total	$	-	$	(23,075,450	)		3.08
	December 31, 2016
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
2-year swap equivalent Eurodollar contracts	$	-	$	(14,968,250	)		2.00
U.S. Treasury futures - 5 year		-		(1,697,200	)		4.42
U.S. Treasury futures - 10 year and greater		-		(2,250,000	)		8.39
Total	$	-	$	(18,915,450	)		2.98

TBA Derivatives

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s TBA derivatives as of June 30, 2017 and December 31, 2016:

June 30, 2017
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	13,251,000	$	13,851,936	$	13,803,974	$	(47,962	)
December 31, 2016
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	11,223,000	$	11,495,514	$	11,437,316	$	(58,198	)