Derivatives (Tables)

6 Months Ended

Jun. 30, 2020

Derivative [Line Items]

Derivative Instruments, Gain (Loss)

The table below provides detail of the Company’s “loss on derivative instruments, net” by type of derivative for the periods indicated:

	Three Months				Six Months Ended
	June 30,				June 30,
Type of Derivative Instrument	2020		2019		2020		2019
Interest rate swaps	$	(1,672)	$	(124,213)	$	(183,852)	$	(195,978)
Interest rate swaptions	—		—		(573)		—
Futures	(10,928)		(102)		(19,377)		(211)
Options on U.S. Treasury futures	(6,680)		—		(17,406)		—
TBA securities - long positions	8,688		6,780		27,119		16,956
TBA securities - short positions	2,029		—		(10,041)		—
Loss on derivative instruments, net	$	(8,563)	$	(117,535)	$	(204,130)	$	(179,233)

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

The table below summarizes information about the fair value by type of derivative instrument on the Company’s consolidated balance sheets as of the dates indicated:

Type of Derivative Instrument	Balance Sheet Location	Purpose	June 30, 2020		December 31, 2019
Options on U.S. Treasury futures	Derivative assets	Economic hedging	$	3,168	$	2,883
Interest rate swaptions	Derivative assets	Economic hedging	—		573
TBA securities - long positions	Derivative assets	Investing	4,758		834
Total derivatives assets			$	7,926	$	4,290
U.S. Treasury futures	Derivative liabilities	Economic hedging	$	(4,208)	$	—
TBA securities - short positions	Derivative liabilities	Economic hedging	—		(974)
Total derivatives liabilities			$	(4,208)	$	(974)

Schedule of Derivative Instruments

Interest Rate Swaps

The Company has interest rate swap agreements outstanding with various counterparties that are centrally cleared through the CME. As explained in Note 1, the exchange of variation margin for CME cleared interest rate swaps is legally considered to be the settlement of the derivative itself as opposed to a pledge of collateral. Because the Company accounts for this daily exchange of variation margin for its CME cleared interest rate swaps as an increase or decrease to the carrying value of the related derivative asset or liability, the fair value of the interest rate swaps nets to $0 on the Company’s

consolidated balance sheet. The Company had net settlement amounts of $(2,866) and $(9,265) in variation margin for its interest rate swaps as of June 30, 2020 and December 31, 2019, respectively.

The following tables present information about the Company’s interest rate swaps as of the dates indicated:

	June 30, 2020					December 31, 2019
			Weighted-Average					Weighted-Average
Years to Maturity:	Notional Amount		Pay Rate		Life Remaining (in Years)	Notional Amount		Pay Rate		Life Remaining (in Years)
< 3 years	$	50,000	1.35	%	0.3	$	2,860,000	1.58	%	1.5
>3 and < 6 years	—		—	%	—	700,000		1.43	%	4.7
>6 and < 10 years	425,000		0.69	%	9.9	545,000		1.78	%	9.4
>10 years	—		—	%	—	120,000		2.84	%	27.7
Total	$	475,000	0.76	%	9.0	$	4,225,000	1.62	%	3.8

U.S. Treasury Futures and Options

The following table presents information about the Company’s U.S. Treasury futures and options outstanding as of the dates indicated:

	Cost Basis		Fair Value		Notional Amount
As of June 30, 2020:
Options on U.S. Treasury futures (1)	$	20,622	$	3,168	$	1,425,000
U.S. Treasury futures - short positions	n/a		(4,208)		1,225,000
As of December 31, 2019:
Options on U.S. Treasury futures (2)	$	4,359	$	2,883	$	1,350,000
Pay-fixed interest rate swaptions (2)	6,180		573		750,000

(1) All futures and options outstanding as of June 30, 2020 will expire in September of 2020.

(2) All options outstanding as of December 31, 2019 expired during the first quarter of 2020.

TBA Securities

The following table summarizes information about the Company's TBA securities as of the dates indicated:

	June 30, 2020				December 31, 2019
	Long Positions		Short Positions		Long Positions		Short Positions
Implied market value (1)	$	1,290,078	$	—	$	442,161	$	(520,117)
Implied cost basis (2)	1,285,320		—		441,327		(519,143)
Net carrying value (3)	$	4,758	$	—	$	834	$	(974)

(1) Implied market value represents the estimated fair value of the underlying Agency MBS as of the date indicated.

(2) Implied cost basis represents the forward price to be paid for the underlying Agency MBS as of the date indicated.

(3) Net carrying value is the amount included on the consolidated balance sheets within “derivative assets (liabilities)” and represents the difference between the implied market value and the implied cost basis of the TBA security as of the date indicated.

Schedule of Notional Amounts of Outstanding Derivative Positions

The tables below summarize changes in the Company’s derivative instruments for the period indicated:

Type of Derivative Instrument	Notional Amount as of December 31, 2019		Additions		Settlements, Terminations, or Pair-Offs		Notional Amount as of June 30, 2020
Interest rate swaps	$	4,225,000	$	2,915,000	$	(6,665,000)	$	475,000
Interest rate swaptions	750,000		—		(750,000)		—
U.S. Treasury futures - short positions	—		2,212,600		(3,437,600)		(1,225,000)
Options on U.S. Treasury futures	1,350,000		3,425,000		(3,350,000)		1,425,000
TBA - long positions	435,000		5,311,000		(4,496,000)		1,250,000
TBA - short positions	500,000		3,017,000		(3,517,000)		—

Offsetting Assets

	Offsetting of Assets
	Gross Amount of Recognized Assets		Gross Amount Offset in the Balance Sheet		Net Amount of Assets Presented in the Balance Sheet		Gross Amount Not Offset in the Balance Sheet (1)				Net Amount
							Financial Instruments Received as Collateral		Cash Received as Collateral
June 30, 2020
Options on U.S. Treasury futures	$	3,168	—		$	3,168	$	—	$	—	$	3,168
TBA - long positions	4,758		—		4,758		—		—		4,758
Derivative assets	$	7,926	$	—	$	7,926	$	—	$	—	$	7,926
December 31, 2019
Interest rate swaptions	$	573	$	—	$	573	$	—	$	—	$	573
Options on U.S. Treasury futures	2,883		—		2,883		—		—		2,883
TBA - long positions	834		—		834		(380)		—		454
Derivative assets	$	4,290	$	—	$	4,290	$	(380)	$	—	$	3,910

Offsetting Liabilities

	Offsetting of Liabilities
	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Balance Sheet		Net Amount of Liabilities Presented in the Balance Sheet		Gross Amount Not Offset in the Balance Sheet (1)				Net Amount
							Financial Instruments Posted as Collateral		Cash Posted as Collateral
June 30, 2020
U.S. Treasury futures	$	(4,208)	—		$	(4,208)	$	—	$	4,208	$	—
TBA - short positions	—		—		—		—		—		—
Derivative liabilities	$	(4,208)	$	—	$	(4,208)	$	—	$	4,208	$	—
December 31, 2019
TBA - short positions	$	(974)	—		$	(974)	$	380	—		$	(594)
Derivative liabilities	$	(974)	$	—	$	(974)	$	380	$	—	$	(594)

(1) Amounts disclosed for collateral received by or posted to the same counterparty include cash and the fair value of MBS up to and not exceeding the net amount of the derivative asset or liability presented in the balance sheet. The fair value of the total collateral received by or posted to the same counterparty may exceed the amounts presented. Please refer to the consolidated balance sheets for the total cash posted as collateral, which is recorded as "restricted cash," and the total fair value of financial instruments pledged as collateral for derivatives and repurchase agreements, which is shown parenthetically.