DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2019

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 June 30, 2019 and December 31, 2018:

Derivatives Instruments	June 30, 2019		December 31, 2018
Assets	(dollars in thousands)
Interest rate swaps	$	5,440	$	48,114
Interest rate swaptions	5,444		7,216
TBA derivatives	34,889		141,688
Futures contracts	20,388		—
Purchase commitments	3,957		844
Credit derivatives (1)	5,024		2,641
	$	75,142	$	200,503
Liabilities
Interest rate swaps	$	677,295	$	420,365
TBA derivatives	1,432		—
Futures contracts	363,165		462,309
Purchase commitments	896		33
Credit derivatives (1)	409		7,043
	$	1,043,197	$	889,750

⁽¹⁾ 

The notional amount of the credit derivatives in which the Company purchased protection was $30.0 million at June 30, 2019 and December 31, 2018. The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $336.0 million and $451.0 million at June 30, 2019 and December 31, 2018, 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 June 30, 2019 and December 31, 2018:

 

June 30, 2019
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	34,092,400	1.82	%	2.44	%	1.37
3 - 6 years	12,300,800		2.00	%	2.47	%	4.45
6 - 10 years	17,122,500		2.52	%	2.51	%	8.79
Greater than 10 years	3,578,000		3.59	%	2.44	%	17.56
Total / Weighted average	$	67,093,700	2.12	%	2.46	%	4.63
December 31, 2018
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	31,900,200	1.84	%	2.73	%	1.21
3 - 6 years	16,603,200		2.29	%	2.70	%	4.30
6 - 10 years	18,060,900		2.57	%	2.56	%	8.62
Greater than 10 years	3,901,400		3.63	%	2.59	%	17.33
Total / Weighted average	$	70,465,700	2.17	%	2.68	%	4.26

⁽¹⁾ There were no forward starting swaps at June 30, 2019 and December 31, 2018.

The following table presents swaptions outstanding at June 30, 2019 and December 31, 2018.

June 30, 2019
	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	$3,200,000	2.87%	3M LIBOR	10.54	8.73
December 31, 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	$4,075,000	3.30%	3M LIBOR	10.08	3.06

The following table summarizes certain characteristics of the Company’s TBA derivatives at June 30, 2019 and December 31, 2018:

June 30, 2019
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	9,469,000	$	9,629,913	$	9,663,370	33,457
December 31, 2018
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	13,803,000	$	13,823,109	$	13,964,797	141,688

 The following table summarizes certain characteristics of the Company’s futures derivatives at June 30, 2019 and December 31, 2018:

 

June 30, 2019
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(2,872,400	)	1.94
U.S. Treasury futures - 5 year	—		(7,716,500		)	4.39
U.S. Treasury futures - 10 year and greater	900,000		(8,430,900		)	7.75
Total	$	900,000	$	(19,019,800	)	5.61
December 31, 2018
	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(1,166,000	)	1.97
U.S. Treasury futures - 5 year	—		(6,359,400		)	4.39
U.S. Treasury futures - 10 year and greater	—		(11,152,600		)	7.10
Total	$	—	$	(18,678,000	)	5.86

Offsetting of Derivative Assets and Liabilities

June 30, 2019 and December 31, 2018, respectively.

June 30, 2019
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	5,440	$	(4,884	)	$	—		$	556
Interest rate swaptions, at fair value	5,444		—			—			5,444
TBA derivatives, at fair value	34,889		(1,432		)	—			33,457
Futures contracts, at fair value	20,388		(20,388		)	—			—
Purchase commitments	3,957		—			—			3,957
Credit derivatives	5,024		(409		)	—			4,615
Liabilities
Interest rate swaps, at fair value	$	677,295	$	(4,884	)	$	(96,549	)	$	575,862
TBA derivatives, at fair value	1,432		(1,432		)	—			—
Futures contracts, at fair value	363,165		(20,388		)	(342,777		)	—
Purchase commitments	896		—			—			896
Credit derivatives	409		(409		)	—			—
December 31, 2018
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	48,114	$	(29,308	)	$	—		$	18,806
Interest rate swaptions, at fair value	7,216		—			—			7,216
TBA derivatives, at fair value	141,688		—			—			141,688
Purchase commitments	844		—			—			844
Credit derivatives	2,641		(2,641		)	—			—
Liabilities
Interest rate swaps, at fair value	$	420,365	$	(29,308	)	$	(11,856	)	$	379,201
Futures contracts, at fair value	462,309		—			(462,309		)	—
Purchase commitments	33		—			—			33
Credit derivatives	7,043		(2,641		)	(4,402		)	—

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)
June 30, 2019	$	83,653		$	(167,491	)	$	(1,276,019	)
June 30, 2018	$	31,475		$	—		$	343,475
For the six months ended
June 30, 2019	$	217,688		$	(755,747	)	$	(1,666,575	)
June 30, 2018	$	(16,685	)	$	834		$	1,320,760

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, 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	$	174,221		$	(68,291	)	$	105,930
Net interest rate swaptions	(11,317		)	(7,178		)	(18,495		)
Futures	(514,441		)	(82,779		)	(597,220		)
Purchase commitments	—			1,106			1,106
Credit derivatives	1,199			1,069			2,268
Total							$	(506,411	)

 

Three Months Ended June 30, 2018
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	$	(30,228	)	$	11,123	$	(19,105	)
Net interest rate swaptions	(35,667		)	3,999		(31,668		)
Futures	62,618			15,684		78,302
Purchase commitments	—			59		59
Credit derivatives	2,889			3,712		6,601
Total						$	34,189