We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, credit and foreign exchange rate risk primarily by managing the amount, sources, and duration of our investments, borrowings, and the use of derivative financial instruments. Specifically, we use derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates or foreign exchange rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings.


$ in thousands	Notional Amount as of December 31, 2020	Additions (1)	Settlement, Termination, Expiration or Exercise (1)	Notional Amount as of December 31, 2021
Interest Rate Swaps (2)(3)	6,300,000	4,250,000	(2,500,000)	8,050,000
Interest Rate Swaptions	—	1,000,000	(1,000,000)	—
Currency Forward Contracts	33,084	65,279	(84,767)	13,596
TBA Purchase Contracts	1,700,000	23,125,000	(23,225,000)	1,600,000
TBA Sale Contracts	—	(23,225,000)	23,225,000	—
Total	8,033,084	5,215,279	(3,584,767)	9,663,596

(1)Excludes $7.3 billion of additions and terminations related to the transition of our interest rate swaps that were indexed to LIBOR to interest rate swaps that are indexed to SOFR. These transactions were accounted for under the FASB's reference rate reform relief. Refer to Note 2 - “Summary of Significant Accounting Policies” for additional information.

(3)Notional amount as of December 31, 2021 includes $6.3 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $1.8 billion of interest rate swaps whereby we pay interest at a floating rate and receive interest at a fixed rate.

Our repurchase agreements are usually settled on a short-term basis ranging from one month to six months. At each settlement date, we typically refinance each repurchase agreement at the market interest rate at that time. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposures to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Under the terms of the majority of our interest rate swap contracts, we make fixed-rate payments to a counterparty in exchange for the receipt of variable-rate amounts over the life of the agreements without exchange of the underlying notional amount. To a lesser extent, we also enter into interest rate swap contracts whereby we make floating-rate payments to a counterparty in exchange for the receipt of fixed-rate amounts as part of our overall risk management strategy.

Amounts recorded in AOCI before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. We reclassified $22.0 million as a decrease (2020: $23.8 million as a decrease; 2019: $23.7 million as a decrease) to interest expense for the year ended December 31, 2021. During the next 12 months, we estimate that $19.7 million will be reclassified as a decrease to interest expense, repurchase agreements. As of December 31, 2021, $30.1 million (2020: $52.1 million) of net unrealized gains on discontinued cash flow hedges are still included in accumulated other comprehensive income and will be reclassified to interest expense, repurchase agreements over a period of time through December 15, 2023.

As of December 31, 2021 and 2020, we had interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate, excluding interest rate swaps with forward start dates, with maturities as shown in the table below. Floating rate interest on swaps held as of December 31, 2021 was based on SOFR and floating rate interest on swaps held as of December 31, 2020 was based on 1-month LIBOR.


$ in thousands	As of December 31, 2021
Maturities	Notional Amount	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity
Less than 3 years	1,000,000	0.06	%	0.05	%	2.6
3 to 5 years	1,250,000	0.12	%	0.05	%	3.6
5 to 7 years	2,225,000	0.32	%	0.05	%	5.9
7 to 10 years	1,825,000	0.52	%	0.05	%	8.6

Total	6,300,000	0.30	%	0.05	%	5.7


$ in thousands	As of December 31, 2020
Maturities	Notional Amount	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity
3 to 5 years	2,250,000	0.20	%	0.15	%	4.2
5 to 7 years	1,775,000	0.43	%	0.15	%	6.7
7 to 10 years	2,275,000	0.60	%	0.15	%	9.2

Total	6,300,000	0.41	%	0.15	%	6.7

As of December 31, 2021, we held $1.3 billion notional amount of interest rate swaps with forward start dates that will receive floating interest based on SOFR with a weighted average maturity of 20.8 years and a weighted average fixed pay rate of 0.99%. We did not hold any interest rate swaps with forward start dates as of December 31, 2020.

As of December 31, 2021, we had interest rate swaps whereby we pay floating interest based on SOFR and receive interest at a fixed rate with maturities as shown in the table below. We did not hold any interest rate swaps that paid floating interest as of December 31, 2020.


$ in thousands	As of December 31, 2021
Maturities	Notional Amounts	Weighted Average Floating Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Years to Maturity
Less than 3 years	1,000,000	0.05	%	0.77	%	2.6

5 to 7 years	500,000	0.05	%	1.26	%	6.9
7 to 10 years	250,000	0.05	%	1.27	%	10.0

Total	1,750,000	0.05	%	0.98	%	4.9

We periodically purchase interest rate swaptions to help mitigate the potential impact of increases or decreases in interest rates on the performance of our Agency RMBS portfolio (referred to as “convexity risk”). The interest rate swaptions provide us the option to enter into interest rate swap agreements for a predetermined notional amount, stated term and pay and receive interest rates in the future. The premium paid for interest rate swaptions is reported as a derivative asset in our consolidated balance sheets. The premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk, if any. The difference between the premium and the fair value of the swaption is reported in gain (loss) on derivative instruments, net in our consolidated statements of operations. If an interest rate swaption expires unexercised, the loss on the interest rate swaption would equal the premium paid. If we sell or exercise an interest rate swaption, the realized gain or loss on the interest rate swaption would equal the difference between the cash or the fair value of the underlying interest rate swap received and the premium paid.

We purchase or sell futures contracts to help mitigate the potential impact of changes in interest rates on the performance of our investment portfolio. We recognize realized and unrealized gains and losses associated with the purchases or sales of futures contracts in gain (loss) on derivative instruments, net in our consolidated statements of operations. We did not have any futures contracts outstanding as of December 31, 2021 and December 31, 2020.

We use currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on our investments denominated in foreign currencies. We recognize realized and unrealized gains and losses associated with the purchases or sales of currency forward contracts in gain (loss) on derivative instruments, net in our consolidated statements of operations. As of December 31, 2021, we had $13.6 million (December 31, 2020: $33.1 million) of notional amount of currency forward contracts related to an investment in an unconsolidated venture denominated in euro.

Our GSE CRTs purchased before August 24, 2015 were accounted for as hybrid financial instruments consisting of a debt host contract and an embedded credit derivative. Embedded derivatives associated with GSE CRTs were recorded within mortgage-backed and credit risk transfer securities, at fair value, on our consolidated balance sheets. We did not hold any GSE CRTs that were accounted for as hybrid financial instruments as of December 31, 2021 and 2020.

We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS. The following table summarizes certain characteristics of our TBAs accounted for as derivatives as of December 31, 2021 and 2020.


$ in thousands
Derivative Assets			Derivative Liabilities
	As of December 31, 2021	As of December 31, 2020		As of December 31, 2021	As of December 31, 2020
Balance Sheet	Fair Value	Fair Value	Balance Sheet	Fair Value	Fair Value
Interest Rate Swaps Asset	—	—	Interest Rate Swaps Liability	11,405	5,537
Currency Forward Contracts	270	111	Currency Forward Contracts	—	807
TBAs	—	9,893	TBAs	2,951	—
Total Derivative Assets	270	10,004	Total Derivative Liabilities	14,356	6,344

$ in thousands

Year ended December 31, 2020

Derivative
not designated as
hedging instrument

Realized gain (loss), net

GSE CRT embedded derivative coupon interest

Unrealized
gain (loss), net

Realized and unrealized credit derivative income (loss), net

GSE CRT Embedded Derivatives

(31,354)

6,323

(10,281)

(35,312)

$ in thousands

Year Ended December 31, 2019

Derivative
not designated as
hedging instrument

Realized gain (loss), net

GSE CRT embedded derivative coupon interest

Unrealized
gain (loss), net

Realized and unrealized credit derivative income (loss), net

GSE CRT Embedded Derivatives

—

20,833

(12,490)

8,343

The following tables summarize the effect of interest rate swaps, swaptions, futures contracts, currency forward contracts and TBAs reported in gain (loss) on derivative instruments, net on the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019.


$ in thousands	Year ended December 31, 2021
Derivative not designated as hedging instrument	Realized gain (loss) on derivative instruments, net	Contractual net interest income (expense)	Unrealized gain (loss), net	Gain (loss) on derivative instruments, net
Interest Rate Swaps	185,232	(15,803)	(5,869)	163,560
Interest Rate Swaptions	(553)	—	—	(553)
Currency Forward Contracts	209	—	970	1,179
TBAs	(28,731)	—	(12,844)	(41,575)
Total	156,157	(15,803)	(17,743)	122,611


$ in thousands	Year ended December 31, 2020
Derivative not designated as hedging instrument	Realized gain (loss) on derivative instruments, net	Contractual net interest income (expense)	Unrealized gain (loss), net	Gain (loss) on derivative instruments, net
Interest Rate Swaps	(857,753)	8,047	(24,068)	(873,774)
Currency Forward Contracts	(1,301)	—	(345)	(1,646)
TBAs	14,477	—	9,893	24,370
Total	(844,577)	8,047	(14,520)	(851,050)


$ in thousands	Year ended December 31, 2019
Derivative not designated as hedging instrument	Realized gain (loss) on derivative instruments, net	Contractual net interest income (expense)	Unrealized gain (loss), net	Gain (loss) on derivative instruments, net
Interest Rate Swaps	(440,626)	35,840	18,826	(385,960)
Futures Contracts	(157,929)	—	7,836	(150,093)
Currency Forward Contracts	1,478	—	(180)	1,298
Total	(597,077)	35,840	26,482	(534,755)