XML 30 R12.htm IDEA: XBRL DOCUMENT v3.24.0.1
Derivatives
 12 Months Ended
Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives DERIVATIVES
Types and Uses of Derivatives Instruments

Interest Rate Derivatives. During the periods presented herein, the Company used short positions in U.S. Treasury futures, interest rate swaptions, and put options on U.S. Treasury futures to mitigate the impact of changing interest rates on its repurchase agreement financing costs and the fair value of its investments.

TBA Transactions. The Company purchases TBA securities as a means of investing in non-specified fixed-rate Agency RMBS and may also periodically sell TBA securities as a means of economically hedging its exposure to Agency RMBS. The Company holds long or short positions in TBA securities by executing a series of transactions, commonly referred to as “dollar roll” transactions, which effectively delay the settlement of a forward purchase (or sale) of a non-specified Agency RMBS by entering into an offsetting TBA position, net settling the paired-off positions in cash, and simultaneously entering into an identical TBA long (or short) position with a later settlement date. TBA securities purchased (or sold) for a forward settlement date are generally priced at a discount relative to TBA securities settling in the current month. This discount, often referred to as “drop income” represents the economic equivalent of net interest income (interest income less implied financing cost) on the underlying Agency security from trade date to settlement date. The Company accounts for all TBAs (whether net long or net short positions, or collectively “TBA dollar roll positions”) as derivative instruments because it cannot assert that it is probable at inception and throughout the term of an individual TBA transaction that its settlement will result in physical delivery of the underlying Agency RMBS, or that the individual TBA transaction will settle in the shortest
period possible.

The table below provides detail of the Company’s “(loss) gain on derivative instruments, net” by type of derivative instrument for the periods indicated:
Year Ended
December 31,
Type of Derivative Instrument202320222021
($s in thousands)
U.S. Treasury futures$(12,430)$724,347 $61,215 
Interest rate swaptions— 47,738 40,330 
Put options on U.S. Treasury futures
1,588 (431)(2,141)
TBA securities-long positions(22,063)(335,647)(17,987)
(Loss) gain on derivative instruments, net$(32,905)$436,007 $81,417 

The table below provides the carrying amount by type of derivative instrument comprising the Company’s derivative assets and liabilities on its consolidated balance sheets as of the dates indicated:
Type of Derivative InstrumentBalance Sheet LocationPurposeDecember 31, 2023December 31, 2022
($s in thousands)
Put options on U.S. Treasury futures
Derivative assetsEconomic hedging$— $5,859 
TBA securitiesDerivative assetsInvesting54,361 1,243 
Total derivatives assets$54,361 $7,102 
TBA securitiesDerivative liabilitiesInvesting$— $22,595 
Total derivatives liabilities$— $22,595 

The Company’s U.S. Treasury futures contracts were in a liability position of $(219.9) million as of December 31, 2023 and an asset position of $26.6 million as of December 31, 2022, but because these instruments are considered legally settled on a daily basis, the carrying value on the Company’s consolidated balance sheet nets to $0. The amount of cash posted by the Company to cover required initial margin for its U.S. Treasury futures was $118.2 million as of December 31, 2023 and $101.2 million as of December 31, 2022, which was recorded within “cash collateral posted to counterparties.” The Company had a margin excess of $1.3 million as of December 31, 2023 and $6.6 million as of December 31, 2022, which was recorded within “due from counterparties.”

The following table summarizes information about the Company's long positions in TBA securities as of the dates indicated:
($s in thousands)
December 31, 2023December 31, 2022
Implied market value (1)
$1,381,702 $2,751,568 
Implied cost basis (2)
1,327,341 2,772,920 
Net carrying value (3)
$54,361 $(21,352)
(1) Implied market value represents the estimated fair value of the underlying Agency MBS as of the dates indicated.
(2) Implied cost basis represents the forward price to be paid for the underlying Agency MBS as of the dates indicated.
(3) Net carrying value is the amount included on the consolidated balance sheets within “derivative assets” and “derivative liabilities” and represents the difference between the implied market value and the implied cost basis of the TBA securities as of the dates indicated.
Volume of Activity

The table below summarizes changes in the Company’s derivative instruments for the year ended December 31, 2023:
Type of Derivative InstrumentBeginning
Notional Amount-Long (Short)		AdditionsSettlements,
Terminations,
or Pair-Offs		Ending
Notional Amount-Long (Short)
($s in thousands)
U.S. Treasury futures$(4,920,000)$(21,750,000)$21,790,000 $(4,880,000)
Put options on U.S. Treasury futures
250,000 600,000 (850,000)— 
TBA securities2,869,000 28,231,000 (29,697,000)1,403,000 

Offsetting

The Company's derivatives are subject to underlying agreements with master netting or similar arrangements, which provide for the right of setoff in the event of default or in the event of bankruptcy of either party to the transactions. The Company reports its derivative assets and liabilities subject to these arrangements on a gross basis. Please see Note 4 for information related to the Company’s repurchase agreements, which are also subject to underlying agreements with master netting or similar arrangements. The following tables present information regarding those derivative assets and liabilities subject to such arrangements as if the Company had presented them on a net basis as of December 31, 2023 and December 31, 2022:
Offsetting of Assets
($s in thousands)
Gross Amount of Recognized AssetsGross Amount Offset in the Balance SheetNet Amount of Assets Presented in the Balance Sheet
Gross Amount Not Offset in the Balance Sheet (1)
Net Amount
Financial Instruments Received as CollateralCash Received as Collateral
December 31, 2023
Put options on U.S. Treasury futures
$— $— $— $— $— $— 
TBA securities54,361 — 54,361 — (44,153)10,208 
Derivative assets$54,361 $— $54,361 $— $(44,153)$10,208 
December 31, 2022
Put options on U.S. Treasury futures
$5,859 $— $5,859 $— $— $5,859 
TBA securities1,243 — 1,243 (1,243)— — 
Derivative assets$7,102 $— $7,102 $(1,243)$— $5,859 
Offsetting of Liabilities
($s in thousands)
Gross Amount of Recognized LiabilitiesGross Amount Offset in the Balance SheetNet Amount of Liabilities Presented in the Balance Sheet
Gross Amount Not Offset in the Balance Sheet (1)
Net Amount
Financial Instruments Posted as CollateralCash Posted as Collateral
December 31, 2023
TBA securities$— $— $— $— $— $— 
Derivative liabilities$— $— $— $— $— $— 
December 31, 2022
TBA securities$22,595 $— $22,595 $(1,243)$(16,639)$4,713 
Derivative liabilities$22,595 $— $22,595 $(1,243)$(16,639)$4,713 
(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 fair value of financial instruments pledged as collateral for derivatives and repurchase agreements, which is shown parenthetically, and the total cash pledged or received as collateral which is disclosed in “cash collateral posted to/by counterparties.”