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DERIVATIVE INSTRUMENTS
 6 Months Ended
Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS
9. DERIVATIVE INSTRUMENTS
Derivative instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA derivatives, U.S. Treasury and Secured Overnight Financing Rate (“SOFR”) futures contracts and certain forward purchase commitments. The Company may also enter into other types of mortgage derivatives such as interest-only securities, credit derivatives referencing the commercial mortgage-backed securities index and synthetic total return swaps. 
In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and futures contracts. The Company may also enter into TBA derivatives, U.S. Treasury futures contracts, certain forward purchase commitments and credit derivatives to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market values resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount of which may vary based on the market value and terms of the derivative contract. In the case of market agreed coupon (“MAC”) interest rate swaps, the Company may make or receive a payment at the time of entering into such interest rate swaps, which represents fair value of these swaps, to compensate for the out of market nature of such interest rate swaps. Subsequent changes in fair value from inception of these interest rate swaps are reflected within Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). Similar to other interest rate swaps, the Company may have to pledge cash or assets as collateral for the MAC interest rate swap transactions. In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts.
Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. 
The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared interest rate swaps net of variation margin pledged or received under such transactions. At June 30, 2024 and December 31,
2023, ($3.3) billion and ($2.4) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value. Initial margin is reported in Cash and cash equivalents in the Consolidated Statements of Financial Condition.
Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk.  In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. The Company may have outstanding interest rate swap agreements where the floating leg is linked to the SOFR, the overnight index swap rate or another index. Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”). Uncleared interest rate swaps are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values. If an interest rate swap is terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid and fair value.
Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates.  Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. The premium paid or received for swaptions is reported as an asset or liability in the Consolidated Statements of Financial Condition. If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid. If the Company sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of swaptions are estimated using internal pricing models and compared to the counterparty market values.
TBA Dollar Rolls – TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities.
Futures Contracts – Futures contracts are derivatives that track the prices of specific assets or benchmark rates. Short sales of futures contracts help to mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains margin accounts which are settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing.
Forward Purchase Commitments – The Company may enter into forward purchase commitments with counterparties whereby the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans close with the counterparties. The counterparties are required to deliver the committed loans on a “best efforts” basis.
Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps.

The following table summarizes fair value information about the Company’s derivative assets and liabilities at June 30, 2024 and December 31, 2023:
Derivatives InstrumentsJune 30, 2024December 31, 2023
Assets(dollars in thousands)
Interest rate swaps$16,824 $26,344 
Interest rate swaptions148,040 105,883 
TBA derivatives14,641 20,689 
Futures contracts1,723 — 
Purchase commitments6,640 9,641 
Total derivative assets$187,868 $162,557 
Liabilities 
Interest rate swaps$15,314 $83,051 
TBA derivatives2,193 39,070 
Futures contracts81,730 179,835 
Purchase commitments1,592 339 
Total derivative liabilities$100,829 $302,295 
    
The following tables summarize certain characteristics of the Company’s interest rate swaps at June 30, 2024 and December 31, 2023:
June 30, 2024
Maturity
Current Notional (1)
Weighted Average Pay RateWeighted Average Receive Rate
Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years
$19,861,229 3.35 %5.33 %1.29
3 - 6 years
14,533,021 3.36 %5.30 %4.82
6 - 10 years
20,501,637 2.80 %5.28 %8.06
Greater than 10 years
1,559,384 3.47 %5.18 %23.75
Total / Weighted average$56,455,271 3.13 %5.30 %5.28
December 31, 2023
Maturity
Current Notional (1)
Weighted Average
Pay Rate		Weighted Average Receive Rate
Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years
$21,397,358 3.17 %5.26 %1.23
3 - 6 years
12,461,799 3.09 %5.37 %4.75
6 - 10 years
22,949,150 2.85 %5.34 %8.02
Greater than 10 years
2,021,247 3.53 %5.27 %22.71
Total / Weighted average$58,829,554 3.04 %5.31 %5.36
(1) As of June 30, 2024, 6% and 94% of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively. As of December 31, 2023, 6% and 94% of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively.
(2) 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, 2024 and December 31, 2023:
June 30, 2024
Current Underlying NotionalWeighted Average Underlying Fixed RateWeighted Average Underlying Floating RateWeighted Average Underlying Years to MaturityWeighted Average Months to Expiration
(dollars in thousands)
Long pay$1,250,0002.21%SOFR7.192.15
December 31, 2023
Current Underlying NotionalWeighted Average Underlying Fixed RateWeighted Average Underlying Floating RateWeighted Average Underlying Years to MaturityWeighted Average Months to Expiration
(dollars in thousands)
Long pay$1,250,0002.21%SOFR7.698.21
Long receive$500,0001.65%SOFR10.303.53
The following tables summarize certain characteristics of the Company’s TBA derivatives at June 30, 2024 and December 31, 2023:
June 30, 2024
Purchase and sale contracts for derivative TBAsNotionalImplied Cost BasisImplied Market ValueNet Carrying Value
(dollars in thousands)
Purchase contracts$2,395,000 $2,313,203 $2,324,113 $10,910 
Sale contracts(733,000)(673,262)(671,724)1,538 
Net TBA derivatives$1,662,000 $1,639,941 $1,652,389 $12,448 
December 31, 2023
Purchase and sale contracts for derivative TBAsNotionalImplied Cost BasisImplied Market ValueNet Carrying Value
(dollars in thousands)
Purchase contracts$988,000 $920,626 $915,790 $(4,836)
Sale contracts(1,491,000)(1,475,847)(1,489,392)(13,545)
Net TBA derivatives$(503,000)$(555,221)$(573,602)$(18,381)
The following tables summarize certain characteristics of the Company’s futures derivatives at June 30, 2024 and December 31, 2023: 
June 30, 2024
 Notional - Long
Positions		Notional - Short
Positions		Weighted Average
Years to Maturity
 (dollars in thousands)
2-year swap equivalent SOFR contracts$2,790,000 $— 1.97
U.S. Treasury futures - 2 year
— (1,306,400)1.97
U.S. Treasury futures - 10 year and greater
— (6,025,500)10.72
Total$2,790,000 $(7,331,900)7.18
December 31, 2023
 Notional - Long
Positions		Notional - Short
Positions		Weighted Average
Years to Maturity
 (dollars in thousands)
U.S. Treasury futures - 2 year
$— $(5,001,400)1.97
U.S. Treasury futures - 10 year and greater
— (1,733,600)14.26
Total$— $(6,735,000)5.13
The Company presents derivative contracts on a gross basis in the Consolidated Statements of Financial Condition. Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty.
The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in the Company’s Consolidated Statements of Financial Condition at June 30, 2024 and December 31, 2023, respectively.
June 30, 2024
 Amounts Eligible for Offset 
 Gross AmountsFinancial InstrumentsCash CollateralNet Amounts
Assets(dollars in thousands)
Interest rate swaps, at fair value$16,824 $(9,263)$— $7,561 
Interest rate swaptions, at fair value148,040 (62,215)(82,110)3,715 
TBA derivatives, at fair value14,641 (4,285)(6,595)3,761 
Futures contracts, at fair value1,723 (1,723)— — 
Purchase commitments6,640 — — 6,640 
Liabilities 
Interest rate swaps, at fair value$15,314 $(13,899)$— $1,415 
TBA derivatives, at fair value2,193 (2,193)— — 
Futures contracts, at fair value81,730 (1,723)(80,007)— 
Purchase commitments1,592 — — 1,592 
December 31, 2023
 Amounts Eligible for Offset 
 Gross AmountsFinancial InstrumentsCash CollateralNet Amounts
Assets(dollars in thousands)
Interest rate swaps, at fair value$26,344 $(21,505)$— $4,839 
Interest rate swaptions, at fair value105,883 (45,930)(57,320)2,633 
TBA derivatives, at fair value20,689 (13,282)— 7,407 
Purchase commitments9,641 — — 9,641 
Liabilities 
Interest rate swaps, at fair value$83,051 $(72,844)$— $10,207 
TBA derivatives, at fair value39,070 (34,525)— 4,545 
Futures contracts, at fair value179,835 — (179,835)— 
Purchase commitments339 — — 339 
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, 2024$298,372 $18,721 $97,484 
June 30, 2023$425,293 $48,148 $841,702 
For the six months ended
June 30, 2024$628,521 $(2,516)$998,386 
June 30, 2023$810,999 $(97,671)$(114,570)
(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, 2024
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives$(16,252)$15,931 $(321)
Net interest rate swaptions(12,331)23,857 11,526 
Futures (1)
48,227 (45,882)2,345 
Purchase commitments— 2,360 2,360 
Total
$15,910 
(1) For the three months ended June 30, 2024, includes ($1.2) million of unrealized loss and ($6.8) million of realized loss related to SOFR futures options.
Three Months Ended June 30, 2023
Derivative InstrumentsRealized 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, includes ($18.8) million of unrealized loss related to SOFR futures options.
Six Months Ended June 30, 2024
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives$(24,868)$30,829 $5,961 
Net interest rate swaptions(12,331)54,488 42,157 
Futures (1)
39,547 99,827 139,374 
Purchase commitments— (4,252)(4,252)
Total$183,240 
(1) For the six months ended June 30, 2024, includes ($6.8) million of realized loss related to SOFR futures options.
Six Months Ended June 30, 2023
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives$(54,488)$54,487 $(1)
Net interest rate swaptions2,323 7,415 9,738 
Futures (1)
(123,681)98,362 (25,319)
Purchase commitments— (2,581)(2,581)
Credit derivatives(19,282)13,260 (6,022)
Total$(24,185)
(1) For the six months ended June 30, 2023, includes ($18.8) million of unrealized loss related to SOFR futures options.
Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the
Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange.
Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions. The aggregate fair value of all derivative instruments with the aforementioned features were in a net asset position at June 30, 2024.