DERIVATIVE INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2018

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 September 30, 2018 and December 31, 2017:

Derivatives Instruments	September 30, 2018		December 31, 2017
Derivative Assets:	(dollars in thousands)
Interest rate swaps	$	97,002	$	30,272
Interest rate swaptions	65,356		36,150
TBA derivatives	13,535		29,067
Futures contracts	221,516		218,361
Purchase commitments	189		35
Credit derivatives (1)	7,243		—
	$	404,841	$	313,885
Derivative Liabilities:
Interest rate swaps	$	311,729	$	569,129
TBA derivatives	64,900		21,776
Futures contracts	482		12,285
Purchase commitments	797		157
Credit derivatives (1)	1,886		4,507
	$	379,794	$	607,854

⁽¹⁾  The notional amount of the credit derivatives in which the Company purchased protection was $70.0 million at

September 30, 2018. The maximum potential amount of future payments is the notional amount of $466.0 million

and $125.0 million at September 30, 2018 and December 31, 2017, 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 September 30, 2018 and December 31, 2017:

	September 30, 2018
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	34,361,800	1.76	%	2.36	%	1.38
3 - 6 years	16,854,750		2.25	%	2.34	%	4.44
6 - 10 years	15,746,900		2.48	%	2.26	%	8.62
Greater than 10 years	4,151,400		3.60	%	2.27	%	17.13
Total / Weighted Average	$	71,114,850	2.10	%	2.33	%	4.34
	December 31, 2017
Maturity	Current Notional (1)		Weighted Average Pay Rate (2) (3)		Weighted Average Receive Rate (2)		Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years	$	6,532,000	1.56	%	1.62	%	2.08
3 - 6 years	14,791,800		2.12	%	1.57	%	4.51
6 - 10 years	10,179,000		2.35	%	1.58	%	8.04
Greater than 10 years	3,826,400		3.65	%	1.51	%	18.47
Total / Weighted Average	$	35,329,200	2.22	%	1.58	%	6.72

⁽¹⁾ There were no forward starting swaps at September 30, 2018. Notional amount includes $8.1 billion of forward starting pay fixed

swaps at December 31, 2017.

⁽²⁾  Excludes forward starting swaps.

⁽³⁾  Weighted average fixed rate on forward starting pay fixed swaps was 1.86% at December 31, 2017.

The following table presents swaptions outstanding at September 30, 2018 and December 31, 2017.

	September 30, 2018
	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	$	4,500,000	3.18	%	3M LIBOR	10.21	5.09
	December 31, 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	$	6,000,000	2.62	%	3M LIBOR	9.97	4.49

The following table summarizes certain characteristics of the Company’s TBA derivatives at September 30, 2018 and December 31, 2017:

	September 30, 2018
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	16,209,160		$	16,304,558		$	16,253,193		$	(51,365	)
	December 31, 2017
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	15,828,000		$	16,381,826		$	16,390,251		$	8,425
Sale contracts	(250,000		)	(254,804		)	(255,938		)	(1,134		)
Net TBA derivatives	$	15,578,000		$	16,127,022		$	16,134,313		$	7,291

The following table summarizes certain characteristics of the Company’s futures contracts at September 30, 2018 and December 31, 2017:

	September 30, 2018
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(1,166,000	)	2.00
U.S. Treasury futures - 5 year	—		(6,359,400		)	4.41
U.S. Treasury futures - 10 year and greater	—		(12,346,600		)	7.18
Total	$	—	$	(19,872,000	)	5.99
	December 31, 2017
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
2-year swap equivalent Eurodollar contracts	$	—	$	(17,161,000	)	2.00
U.S. Treasury futures - 5 year	—		(4,217,400		)	4.41
U.S. Treasury futures - 10 year and greater	—		(4,914,500		)	7.01
Total	$	—	$	(26,292,900	)	3.32

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 at September 30, 2018 and December 31, 2017, respectively.

	September 30, 2018
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	97,002	$	(45,805	)	$	—		$	51,197
Interest rate swaptions, at fair value	65,356		—			—			65,356
TBA derivatives, at fair value	13,535		(13,535		)	—			—
Futures contracts, at fair value	221,516		(482		)	—			221,034
Purchase commitments	189		—			—			189
Credit derivatives	7,243		(1,886		)	—			5,357
Liabilities:
Interest rate swaps, at fair value	$	311,729	$	(45,805	)	$	—		$	265,924
TBA derivatives, at fair value	64,900		(13,535		)	—			51,365
Futures contracts, at fair value	482		(482		)	—			—
Purchase commitments	797		—			—			797
Credit derivatives	1,886		(1,886		)	—			—
	December 31, 2017
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	30,272	$	(27,379	)	$	—		$	2,893
Interest rate swaptions, at fair value	36,150		—			—			36,150
TBA derivatives, at fair value	29,067		(12,551		)	—			16,516
Futures contracts, at fair value	218,361		(12,285		)	—			206,076
Purchase commitments	35		—			—			35
Liabilities:
Interest rate swaps, at fair value	$	569,129	$	(27,379	)	$	—		$	541,750
TBA derivatives, at fair value	21,776		(12,551		)	—			9,225
Futures contracts, at fair value	12,285		(12,285		)	—			—
Purchase commitments	157		—			—			157
Credit derivatives	4,507		—			(3,520		)	987

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 or Maturity of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
Three Months Ended:	(dollars in thousands)
September 30, 2018	$	51,349		$	575		$	417,203
September 30, 2017	$	(88,211	)	$	—		$	56,854
Nine Months Ended:
September 30, 2018	$	34,664		$	1,409		$	1,737,963
September 30, 2017	$	(288,837	)	$	(58	)	$	28,471

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 September 30, 2018
Derivative Instruments	Realized Gains (Losses)			Unrealized Gains (Losses)			Amount of Gains (Losses) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	8,569		$	(85,741	)	$	(77,172	)
Net interest rate swaptions	(28,754		)	(17,663		)	(46,417		)
Futures	(114,317		)	327,787			213,470
Purchase commitments	—			(841		)	(841		)
Credit derivatives	3,096			1,676			4,772
Total							$	93,812
	Three Months Ended September 30, 2017
Derivative Instruments	Realized Gains (Losses)			Unrealized Gains (Losses)			Amount of Gains (Losses) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	110,067		$	29,728		$	139,795
Net interest rate swaptions	—			(9,137		)	(9,137		)
Futures	(70,054		)	92,784			22,730
Purchase commitments	—			(108		)	(108		)
Credit derivatives	495			433			928
Total							$	154,208

	Nine Months Ended September 30, 2018
Derivative Instruments	Realized Gains (Losses)			Unrealized Gains (Losses)			Amount of Gains (Losses) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(299,560	)	$	(56,701	)	$	(356,261	)
Net interest rate swaptions	(85,854		)	53,557			(32,297		)
Futures	443,314			14,959			458,273
Purchase commitments	—			(416		)	(416		)
Credit derivatives	7,498			4,060			11,558
Total							$	80,857
	Nine Months Ended September 30, 2017
Derivative Instruments	Realized Gains (Losses)			Unrealized Gains (Losses)			Amount of Gain (Losses) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	215,529		$	39,964		$	255,493
Net interest rate swaptions	—			(19,574		)	(19,574		)
Futures	(128,478		)	31,492			(96,986		)
Purchase commitments	—			165			165
Credit derivatives	632			356			988
Total							$	140,086