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Derivative Instruments and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of March 31, 2022 and December 31, 2021:


	March 31, 2022
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value		Notional
Inverse interest-only securities	$	30,622	$	232,218	$	—	$	—
Interest rate swap agreements	—		24,299,647		—		—


Swaptions, net	15,584		(114,000)		(108,658)		(2,647,000)
TBAs	12,290		3,570,000		(18,871)		1,052,000


U.S. Treasury and Eurodollar futures, net	—		(7,742,850)		—		226,200

Options on U.S. Treasury futures, net	—		2,000		—		—
Total	$	58,496	$	20,247,015	$	(127,529)	$	(1,368,800)


	December 31, 2021
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value		Notional
Inverse interest-only securities	$	41,367	$	247,101	$	—	$	—
Interest rate swap agreements	—		20,387,300		—		—


Swaptions, net	—		—		(51,743)		(1,761,000)
TBAs	3,405		3,523,000		(1,915)		593,000


U.S. Treasury and Eurodollar futures, net	35,362		(5,829,600)		—		—


Total	$	80,134	$	18,327,801	$	(53,658)	$	(1,168,000)

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive loss:


Derivative Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended
(in thousands)		March 31,
		2022		2021
Interest rate risk management:
TBAs	Loss on other derivative instruments	$	(198,836)	$	(187,946)

U.S. Treasury and Eurodollar futures	Loss on other derivative instruments	106,095		(85,141)


Options on U.S. Treasury futures	Loss on other derivative instruments	(2,066)		—
Interest rate swaps - Payers	Loss on interest rate swap and swaption agreements	437,160		80,313
Interest rate swaps - Receivers	Loss on interest rate swap and swaption agreements	(477,139)		(106,373)
Swaptions	Loss on interest rate swap and swaption agreements	1,938		10,461




Non-risk management:

Inverse interest-only securities	Loss on other derivative instruments	(6,955)		(2,924)

Total		$	(139,803)	$	(291,610)

Schedule of Notional Amounts of Outstanding Derivative Positions

The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31, 2022
(in thousands)	Beginning of Period Notional Amount		Additions		Settlement, Termination, Expiration or Exercise		End of Period Notional Amount		Average Notional Amount		Realized Gain (Loss), net (1)
Inverse interest-only securities	$	247,101	$	—	$	(14,883)	$	232,218	$	240,044	$	(1,765)
Interest rate swap agreements	20,387,300		10,791,805		(6,879,458)		24,299,647		24,538,895		(56,264)


Swaptions, net	(1,761,000)		(1,000,000)		—		(2,761,000)		(2,244,333)		—
TBAs, net	4,116,000		20,518,000		(20,012,000)		4,622,000		3,611,400		(190,765)


U.S. Treasury and Eurodollar futures, net	(5,829,600)		(4,866,100)		3,179,050		(7,516,650)		(9,786,491)		(2,113)


Options on U.S. Treasury futures, net	—		2,000		—		2,000		622		—
Total	$	17,159,801	$	25,445,705	$	(23,727,291)	$	18,878,215	$	16,360,137	$	(250,907)


	Three Months Ended March 31, 2021
(in thousands)	Beginning of Period Notional Amount		Additions		Settlement, Termination, Expiration or Exercise		End of Period Notional Amount		Average Notional Amount		Realized Gain (Loss), net (1)
Inverse interest-only securities	$	318,162	$	—	$	(17,565)	$	300,597	$	310,289	$	62
Interest rate swap agreements	12,646,341		3,112,507		(537,251)		15,221,597		13,476,318		(8,595)


Swaptions, net	3,750,000		—		(3,750,000)		—		322,222		2,245
TBAs, net	5,197,000		20,802,000		(21,199,000)		4,800,000		5,304,567		(163,523)

U.S. Treasury and Eurodollar futures, net	2,021,100		970,300		(4,176,500)		(1,185,100)		573,478		(70,897)




Total	$	23,932,603	$	24,884,807	$	(29,680,316)	$	19,137,094	$	19,986,874	$	(240,708)

____________________

(1)Excludes net interest paid or received in full settlement of the net interest spread liability.

Schedule of TBA Positions

The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of March 31, 2022 and December 31, 2021:


	March 31, 2022
							Net Carrying Value (4)
(in thousands)	Notional Amount (1)		Cost Basis (2)		Market Value (3)		Derivative Assets		Derivative Liabilities
Purchase contracts	$	5,443,000	$	5,547,530	$	5,534,648	$	5,989	$	(18,871)
Sale contracts	(821,000)		(810,304)		(804,003)		6,301		—
TBAs, net	$	4,622,000	$	4,737,226	$	4,730,645	$	12,290	$	(18,871)


	December 31, 2021
							Net Carrying Value (4)
(in thousands)	Notional Amount (1)		Cost Basis (2)		Market Value (3)		Derivative Assets		Derivative Liabilities
Purchase contracts	$	4,116,000	$	4,238,881	$	4,240,371	$	3,405	$	(1,915)
Sale contracts	—		—		—		—		—
TBAs, net	$	4,116,000	$	4,238,881	$	4,240,371	$	3,405	$	(1,915)

___________________

(1)Notional amount represents the face amount of the underlying Agency RMBS.

(2)Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3)Market value represents the current market value of the TBA (or of the underlying Agency RMBS) as of period-end.

(4)Net carrying value represents the difference between the market value of the TBA as of period-end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the condensed consolidated balance sheets.

Schedule of U.S. Treasury and Eurodollar Futures

The following table summarizes certain characteristics of the Company’s U.S. Treasury and Eurodollar futures as of March 31, 2022 and December 31, 2021:


(dollars in thousands)	March 31, 2022					December 31, 2021
Type & Maturity	Notional Amount		Carrying Value		Weighted Average Days to Expiration	Notional Amount		Carrying Value		Weighted Average Days to Expiration
U.S. Treasury futures - 10 year	$	(238,400)	$	—	91	$	687,900	$	1,809	90
Eurodollar futures - 3 month
≤ 1 year	(4,707,000)		—		232	(3,582,000)		15,121		213
> 1 and ≤ 2 years	(2,238,250)		—		550	(2,269,500)		14,952		560
> 2 and ≤ 3 years	(333,000)		—		809	(666,000)		3,480		854
Total futures	$	(7,516,650)	$	—	327	$	(5,829,600)	$	35,362	370

Schedule of Options on U.S. Treasury Futures

The following table summarizes certain characteristics of the Company’s options on U.S. Treasury futures as of March 31, 2022 and December 31, 2021:


(dollars in thousands)	March 31, 2022					December 31, 2021
Type & Maturity	Notional Amount		Carrying Value		Weighted Average Days to Expiration	Notional Amount		Carrying Value		Weighted Average Days to Expiration
Call options on U.S. Treasury futures - 10 year	$	2,000	$	—	50	$	—	$	—	0

Schedule of Interest Rate Swap Payers

As of March 31, 2022 and December 31, 2021, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a floating interest rate (OIS or SOFR):


(notional in thousands)
March 31, 2022
Swaps Maturities	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2022	$	7,415,818	0.042	%	0.330	%	0.41
2023	2,582,084		0.113	%	0.325	%	1.26
2024	499,213		0.948	%	0.290	%	1.80
2025	377,610		1.030	%	0.290	%	3.71
2026 and Thereafter	6,697,788		1.418	%	0.299	%	6.90
Total	$	17,572,513	0.624	%	0.315	%	3.12


(notional in thousands)
December 31, 2021
Swaps Maturities	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2022	$	7,415,818	0.420	%	0.070	%	0.66
2023	2,582,084		0.113	%	0.068	%	1.51
2024	—		—	%	—	%	0.00
2025	377,610		1.030	%	0.050	%	3.96
2026 and Thereafter	2,782,057		0.652	%	0.063	%	6.56
Total	$	13,157,569	0.213	%	0.067	%	2.17

Schedule of Interest Rate Swap Receivers

Additionally, as of March 31, 2022 and December 31, 2021, the Company held the following interest rate swaps in order to mitigate mortgage interest rate exposure (or duration) risk whereby the Company pays interest at a floating interest rate (OIS or SOFR):


(notional in thousands)
March 31, 2022
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2022	$	—	—	%	—	%	0.00
2023	2,221,658		0.330	%	0.118	%	0.94
2024	—		—	%	—	%	0.00
2025	—		—	%	—	%	0.00
2026 and Thereafter	4,505,476		0.305	%	1.148	%	8.64
Total	$	6,727,134	0.313	%	0.808	%	6.10


(notional in thousands)
December 31, 2021
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2022	$	2,221,658	0.070	%	0.118	%	1.19
2023	—		—	%	—	%	0.00
2024	—		—	%	—	%	0.00
2025	—		—	%	—	%	0.00
2026 and Thereafter	5,008,073		0.058	%	1.049	%	10.00
Total	$	7,229,731	0.062	%	0.763	%	7.29

Schedule of Interest Rate Swaptions

As of March 31, 2022 and December 31, 2021, the Company had the following outstanding interest rate swaptions:


	March 31, 2022
(notional and dollars in thousands)	Option						Underlying Swap
Swaption	Expiration	Cost Basis		Fair Value		Average Months to Expiration	Notional Amount		Average Fixed Rate (1)		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	11,314	$	21,175	2.32	$	886,000	2.26	%	10.0







Sale contracts:

Payer	≥ 6 Months	$	(47,963)	$	(63,404)	15.45	$	(1,280,000)	1.82	%	10.0


Receiver	< 6 Months	$	(10,640)	$	(205)	2.31	$	(1,087,000)	1.26	%	10.0
Receiver	≥ 6 Months	$	(47,963)	$	(50,640)	20.37	$	(1,280,000)	1.82	%	10.0


	December 31, 2021
(notional and dollars in thousands)	Option						Underlying Swap
Swaption	Expiration	Cost		Fair Value		Average Months to Expiration	Notional Amount		Average Fixed Rate (1)		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	11,314	$	3,539	5.33	$	886,000	2.26	%	10.0







Sale contracts:

Payer	≥ 6 Months	$	(26,329)	$	(23,958)	17.79	$	(780,000)	1.72	%	10.0


Receiver	< 6 Months	$	(10,640)	$	(6,856)	5.11	$	(1,087,000)	1.26	%	10.0
Receiver	≥ 6 Months	$	(26,329)	$	(24,468)	18.91	$	(780,000)	1.72	%	10.0

____________________

(1)As of March 31, 2022, 22.1% and 77.9% of the underlying swap floating rates were tied to SOFR and 3-Month LIBOR, respectively. As of December 31, 2021, 100% of the underlying swap floating rates were tied to 3-Month LIBOR.