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Derivative Instruments and Hedging Activities (Tables)
 9 Months Ended
Sep. 30, 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 September 30, 2022 and December 31, 2021:
September 30, 2022
Derivative AssetsDerivative Liabilities
(in thousands)Fair ValueNotionalFair ValueNotional
Inverse interest-only securities
$16,719 $206,224 $— $— 
Interest rate swap agreements
— — — — 
Swaptions, net— — — — 
TBAs1,687 (300,000)(107,379)4,454,000 
Futures, net— (15,296,550)— — 
Total$18,406 $(15,390,326)$(107,379)$4,454,000 
December 31, 2021
Derivative AssetsDerivative Liabilities
(in thousands)Fair ValueNotionalFair ValueNotional
Inverse interest-only securities
$41,367 $247,101 $— $— 
Interest rate swap agreements
— 20,387,300 — — 
Swaptions, net— — (51,743)(1,761,000)
TBAs3,405 3,523,000 (1,915)593,000 
Futures, net35,362 (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) income:
Derivative InstrumentsLocation of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in Income
Three Months EndedNine Months Ended
(in thousands)September 30,September 30,
2022202120222021
Interest rate risk management:
TBAs
Gain (loss) on other derivative instruments
$(227,668)$(17,125)$(535,946)$(173,254)
Futures
Gain (loss) on other derivative instruments
392,044 3,026 509,451 (63,851)
Options on futures
Gain (loss) on other derivative instruments
— — (2,224)— 
Interest rate swaps - Payers
Gain (loss) on interest rate swap and swaption agreements
100,435 7,019 772,829 64,313 
Interest rate swaps - Receivers
Gain (loss) on interest rate swap and swaption agreements
(75,055)(15,316)(756,744)(67,460)
Swaptions
Gain (loss) on interest rate swap and swaption agreements
9,426 4,350 13,414 8,249 
Non-risk management:
Inverse interest-only securities
Gain (loss) on other derivative instruments
(5,332)(920)(15,272)(2,613)
Total$193,850 $(18,966)$(14,492)$(234,616)
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 and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, 2022
(in thousands)Beginning of Period Notional AmountAdditionsSettlement, Termination, Expiration or ExerciseEnd of Period Notional AmountAverage Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities$217,851 $— $(11,627)$206,224 $212,507 $3,640 
Interest rate swap agreements14,850,336 4,953,139 (19,803,475)— 5,047,637 (133,218)
Swaptions, net(1,680,000)— 1,680,000 — (978,696)(13,532)
TBAs, net6,317,000 18,421,000 (20,584,000)4,154,000 5,681,978 (134,107)
Futures, net
(16,727,160)(29,472,140)30,902,750 (15,296,550)(15,069,468)333,203 
Total$2,978,027 $(6,098,001)$(7,816,352)$(10,936,326)$(5,106,042)$55,986 
Three Months Ended September 30, 2021
(in thousands)Beginning of Period Notional AmountAdditionsSettlement, Termination, Expiration or ExerciseEnd of Period Notional AmountAverage Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities$281,473 $— $(18,459)$263,014 $272,815 $(323)
Interest rate swap agreements15,646,953 1,909,792 (520,150)17,036,595 15,906,528 5,220 
Swaptions, net(201,000)(740,000)— (941,000)(209,043)— 
TBAs, net6,854,000 27,671,000 (25,783,000)8,742,000 7,934,239 32,588 
Options on TBAs, net— 1,000,000 — 1,000,000 10,869 — 
Futures, net
513,500 (1,688,300)(4,738,300)(5,913,100)(2,777,793)28,354 
Total$23,094,926 $28,152,492 $(31,059,909)$20,187,509 $21,137,615 $65,839 
Nine Months Ended September 30, 2022
(in thousands)Beginning of Period Notional AmountAdditionsSettlement, Termination, Expiration or ExerciseEnd of Period Notional AmountAverage Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities$247,101 $— $(40,877)$206,224 $225,928 $— 
Interest rate swap agreements20,387,300 22,398,148 (42,785,448)— 16,611,270 29,543 
Swaptions, net(1,761,000)(1,000,000)2,761,000 — (1,703,469)13,654 
TBAs, net4,116,000 60,636,000 (60,598,000)4,154,000 4,961,564 (428,765)
Futures, net
(5,829,600)(51,838,300)42,371,350 (15,296,550)(12,919,205)333,583 
Options on futures, net
— 2,000 (2,000)— 557 (2,224)
Total$17,159,801 $30,197,848 $(58,293,975)$(10,936,326)$7,176,645 $(54,209)
Nine Months Ended September 30, 2021
(in thousands)Beginning of Period Notional AmountAdditionsSettlement, Termination, Expiration or ExerciseEnd of Period Notional AmountAverage Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities$318,162 $— $(55,148)$263,014 $291,597 $(286)
Interest rate swap agreements12,646,341 6,102,655 (1,712,401)17,036,595 14,869,384 5,267 
Swaptions, net3,750,000 (941,000)(3,750,000)(941,000)13,802 2,245 
TBAs, net5,197,000 69,385,000 (65,840,000)8,742,000 6,506,407 (107,509)
Options on TBAs, net— 1,000,000 — 1,000,000 3,663 — 
Futures, net
2,021,100 6,234,500 (14,168,700)(5,913,100)(844,586)(32,368)
Total$23,932,603 $81,781,155 $(85,526,249)$20,187,509 $20,840,267 $(132,651)
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(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 September 30, 2022 and December 31, 2021:
September 30, 2022
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative AssetsDerivative Liabilities
Purchase contracts$4,454,000 $4,425,269 $4,317,890 $— $(107,379)
Sale contracts(300,000)(271,687)(270,000)1,687 — 
TBAs, net$4,154,000 $4,153,582 $4,047,890 $1,687 $(107,379)
December 31, 2021
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative AssetsDerivative 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 $(1,915)
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(1)Notional amount represents the face amount of the underlying Agency RMBS.
(2)Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.
(3)Market value represents the current market value of the TBA (or of the underlying Agency RMBS) as of period-end.
(4)Net carrying value represents the difference between the market value of the TBA as of period-end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the condensed consolidated balance sheets.
Schedule of U.S. Treasury and Eurodollar Futures The following table summarizes certain characteristics of the Company’s futures as of September 30, 2022 and December 31, 2021:
(dollars in thousands)September 30, 2022December 31, 2021
Type & MaturityNotional AmountCarrying ValueWeighted Average Days to ExpirationNotional AmountCarrying ValueWeighted Average Days to Expiration
U.S. Treasury futures - 2 year$(642,600)$— 97$— $— 0
U.S. Treasury futures - 5 year(4,706,000)— 97— — 0
U.S. Treasury futures - 10 year(3,219,200)— 91687,900 1,809 90
U.S. Treasury futures - 20 year(553,900)— 91— — 0
Federal Funds futures - 30 day(1,250,100)— 50— — 0
Eurodollar futures - 3 month
≤ 1 year(3,832,000)— 152(3,582,000)15,121 213
> 1 and ≤ 2 years(1,092,750)— 457(2,269,500)14,952 560
> 2 and ≤ 3 years— — 0(666,000)3,480 854
Total futures$(15,296,550)$— 126$(5,829,600)$35,362 370
Schedule of Interest Rate Swap Payers As of 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)
December 31, 2021
Swaps MaturitiesNotional AmountWeighted Average Fixed Pay RateWeighted Average Receive RateWeighted Average Maturity (Years)
2022$7,415,818 0.420 %0.070 %0.66
20232,582,084 0.113 %0.068 %1.51
2024— — %— %0.00
2025377,610 1.030 %0.050 %3.96
2026 and Thereafter2,782,057 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 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)
December 31, 2021
Swaps MaturitiesNotional AmountWeighted Average Pay RateWeighted Average Fixed Receive RateWeighted Average Maturity (Years)
2022$2,221,658 0.070 %0.118 %1.19
2023— — %— %0.00
2024— — %— %0.00
2025— — %— %0.00
2026 and Thereafter5,008,073 0.058 %1.049 %10.00
Total$7,229,731 0.062 %0.763 %7.29
Schedule of Interest Rate Swaptions As of December 31, 2021, the Company had the following outstanding interest rate swaptions:
December 31, 2021
(notional and dollars in thousands)OptionUnderlying Swap
SwaptionExpirationCostFair ValueAverage Months to ExpirationNotional 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
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(1)As of December 31, 2021, 100.0% of the underlying swap floating rates were tied to 3-Month LIBOR.