Derivative and Other Hedging Instruments

We hedge a portion of our interest rate risk by entering into interest rate swaps, interest rate swaptions and U.S. Treasury securities and U.S. Treasury futures contracts, primarily through short sales. We may also utilize TBA securities, options and other types of derivative instruments to hedge a portion of our risk. For additional information regarding our derivative instruments and our overall risk management strategy, please refer to the discussion of derivative and other hedging instruments in Note 2.

Derivative and Other Hedging Instrument Assets (Liabilities), at Fair Value

The table below summarizes fair value information about our derivative and other hedging instrument assets/(liabilities) as of December 31, 2018 and 2017 (in millions):



		December 31,
Derivative and Other Hedging Instruments	Balance Sheet Location	2018			2017
Interest rate swaps	Derivative assets, at fair value	$	126		$	81
Swaptions	Derivative assets, at fair value	37			75
TBA securities	Derivative assets, at fair value	110			30
U.S. Treasury futures - short	Derivative assets, at fair value	—			19
Total derivative assets, at fair value		$	273		$	205

Interest rate swaps	Derivative liabilities, at fair value	$	—		$	(1	)
TBA securities	Derivative liabilities, at fair value	(40		)	(27		)
U.S. Treasury futures - short	Derivative liabilities, at fair value	(44		)	—
Total derivative liabilities, at fair value		$	(84	)	$	(28	)

U.S. Treasury securities - long	U.S. Treasury securities, at fair value	$	46		$	—
U.S. Treasury securities - short	Obligation to return securities borrowed under reverse repurchase agreements, at fair value	(21,431		)	(10,467		)
Total U.S. Treasury securities, net at fair value		$	(21,385	)	$	(10,467	)

The following tables summarize certain characteristics of our derivative and other hedging instruments outstanding as of December 31, 2018 and 2017 (dollars in millions):



	December 31, 2018					December 31, 2017
Interest Rate Swaps	Notional Amount ¹		Average Fixed Pay Rate ²	Average Receive Rate	Average Maturity (Years)	Notional Amount ¹		Average Fixed Pay Rate ²	Average Receive Rate	Average Maturity (Years)
≤ 3 years	$	19,900	1.63%	2.62%	1.3	$	21,025	1.40%	1.46%	1.5
> 3 to ≤ 5 years	8,425		2.06%	2.61%	4.0	6,825		1.82%	1.43%	4.1
> 5 to ≤ 7 years	7,875		2.66%	2.66%	6.1	5,775		2.02%	1.44%	5.9
> 7 to ≤ 10 years	10,550		2.36%	2.64%	8.8	6,650		2.10%	1.42%	9.1
> 10 years	4,875		2.77%	2.63%	11.6	3,425		2.49%	1.45%	12.9
Total	$	51,625	2.11%	2.63%	5.0	$	43,700	1.74%	1.44%	4.5

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1.	As of December 31, 2018 and 2017, notional amount includes forward starting swaps of $5.7 billion and $4.6 billion, respectively, with an average forward start date of 0.5 and 0.3 years, respectively.


2.	Average fixed pay rate includes forward starting swaps. Excluding forward starting swaps, the average fixed pay rate was 1.98% and 1.68% as of December 31, 2018 and 2017, respectively.



Swaptions	Option					Underlying Payer Swap
Current Option Expiration Date	Cost Basis		Fair Value		Average Months to Current Option Expiration Date ¹	Notional Amount		Average Fixed Pay Rate	Average Receive Rate (LIBOR)	Average Term (Years)
December 31, 2018
≤ 1 year	$	80	$	23	4	$	3,000	2.96%	3M	7.0
> 1 year ≤ 2 years	18		14		18	500		2.78%	3M	10.0
Total	$	98	$	37	6	$	3,500	2.93%	3M	7.4

December 31, 2017
≤ 1 year	$	118	$	46	7	$	5,100	2.71%	3M	8.8
> 1 year ≤ 2 years	23		16		18	1,050		2.71%	3M	8.7
> 2 year ≤ 3 years	18		13		30	500		2.78%	3M	10.0
Total	$	159	$	75	10	$	6,650	2.72%	3M	8.9

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1.	As of December 31, 2018 and 2017, ≤ 1 year notional amount includes $700 million of Bermudan swaptions where the options may be exercised on predetermined dates up to their final exercise date, which is six months prior to the underlying swaps' maturity date.



U.S. Treasury Securities	December 31, 2018									December 31, 2017
Maturity	Face Amount (Short)			Cost Basis ¹			Fair Value			Face Amount (Short)			Cost Basis ¹			Fair Value
5 years	$	(703	)	$	(706	)	$	(713	)	$	(288	)	$	(286	)	$	(283	)
7 years	(14,357		)	(14,325		)	(14,410		)	(6,131		)	(6,106		)	(6,029		)
10 years	(6,240		)	(6,224		)	(6,262		)	(4,280		)	(4,230		)	(4,155		)
Total U.S. Treasury securities	$	(21,300	)	$	(21,255	)	$	(21,385	)	$	(10,699	)	$	(10,622	)	$	(10,467	)

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1.	As of December 31, 2018 and 2017, U.S. Treasury securities had a weighted average yield of 2.66% and 2.12%, respectively.



U.S. Treasury Futures	December 31, 2018												December 31, 2017
Maturity	Notional Amount - Long (Short)			Cost Basis			Fair Value			Net Carrying Value ¹			Notional Amount - Long (Short)			Cost Basis			Fair Value			Net Carrying Value ¹
5 years	$	—		$	—		$	—		$	—		$	(730	)	$	(852	)	$	(848	)	$	4
10 years	(1,650		)	(1,969		)	(2,013		)	(44		)	(2,180		)	(2,718		)	(2,703		)	15
Total U.S. Treasury futures	$	(1,650	)	$	(1,969	)	$	(2,013	)	$	(44	)	$	(2,910	)	$	(3,570	)	$	(3,551	)	$	19

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1.	Net carrying value represents the difference between the fair market value and the cost basis (or the forward price to be paid/(received) for the underlying U.S. Treasury security) of the U.S. Treasury futures contract as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated balance sheets.



	December 31, 2018												December 31, 2017
TBA Securities by Coupon	Notional Amount - Long (Short)			Cost Basis			Fair Value			Net Carrying Value ¹			Notional Amount - Long (Short)			Cost Basis			Fair Value			Net Carrying Value ¹
15-Year TBA securities:
2.5%	$	—		$	—		$	—		$	—		$	1,373		$	1,372		$	1,370		$	(2	)
3.0%	567			557			566			9			3,161			3,225			3,217			(8		)
3.5%	1,706			1,708			1,726			18			414			428			428			—
4.0%	1,350			1,370			1,381			11			—			—			—			—
Total 15-Year TBA securities	3,623			3,635			3,673			38			4,948			5,025			5,015			(10		)
30-Year TBA securities:
3.0%	1,028			981			1,003			22			4,317			4,303			4,312			9
3.5%	(2,979		)	(2,943		)	(2,977		)	(34		)	3,932			4,027			4,034			7
4.0%	3,030			3,073			3,089			16			2,338			2,449			2,446			(3		)
≥ 4.5%	2,450			2,506			2,534			28			(61		)	(65		)	(65		)	—
Total 30-Year TBA securities, net	3,529			3,617			3,649			32			10,526			10,714			10,727			13
Total TBA securities, net	$	7,152		$	7,252		$	7,322		$	70		$	15,474		$	15,739		$	15,742		$	3

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1.	Net carrying value represents the difference between the fair market value and the cost basis (or the forward price to be paid/(received) for the underlying Agency security) of the TBA contract as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated balance sheets.

Gain (Loss) From Derivative Instruments and Other Securities, Net

The following table summarizes changes in our derivative and other hedge portfolio and their effect on our consolidated statements of comprehensive income for fiscal years 2018, 2017 and 2016 (in millions):



Derivative and Other Hedging Instruments	Beginning Notional Amount			Additions		Settlement, Termination, Expiration or Exercise		Ending Notional Amount			Gain/(Loss) on Derivative Instruments and Other Securities, Net ¹
Fiscal Year 2018:
TBA securities, net	$	15,474		194,534		(202,856	)	$	7,152		$	(299	)
Interest rate swaps	$	43,700		14,350		(6,425	)	$	51,625		140
Payer swaptions	$	6,650		1,250		(4,400	)	$	3,500		90
U.S. Treasury securities - short position	$	(10,699	)	(19,278	)	8,632		$	(21,345	)	(161		)
U.S. Treasury securities - long position	$	—		1,949		(1,904	)	$	45		1
U.S. Treasury futures contracts - short position	$	(2,910	)	(7,859	)	9,119		$	(1,650	)	48
											$	(181	)
Fiscal Year 2017:
TBA securities, net	$	10,916		237,601		(233,043	)	$	15,474		$	330
Interest rate swaps	$	37,175		14,825		(8,300	)	$	43,700		67
Payer swaptions	$	1,200		6,450		(1,000	)	$	6,650		(66		)
U.S. Treasury securities - short position	$	(8,061	)	(14,030	)	11,392		$	(10,699	)	(141		)
U.S. Treasury securities - long position	$	189		404		(593	)	$	—		1
U.S. Treasury futures contracts - short position	$	(1,810	)	(11,340	)	10,240		$	(2,910	)	—
											$	191
Fiscal Year 2016:
TBA securities, net	$	7,295		116,439		(112,818	)	$	10,916		$	(59	)
Interest rate swaps	$	40,525		15,650		(19,000	)	$	37,175		(397		)
Payer swaptions	$	2,150		500		(1,450	)	$	1,200		(3		)
U.S. Treasury securities - short position	$	(1,714	)	(9,884	)	3,537		$	(8,061	)	7
U.S. Treasury securities - long position	$	25		961		(797	)	$	189		134
U.S. Treasury futures contracts - short position	$	(1,860	)	(7,840	)	7,890		$	(1,810	)	(5		)
											$	(323	)

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1.	Amounts exclude other miscellaneous gains and losses recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.