Derivative Instruments and Hedging Activities (Tables)
|
3 Months Ended |
Mar. 31, 2020 |
|---|
| 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, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
|
|
Derivative Assets |
|
Derivative Liabilities |
(in thousands) |
|
Fair Value |
|
Notional |
|
Fair Value |
|
Notional |
Inverse interest-only securities |
|
$ |
73,904 |
|
|
$ |
379,239 |
|
|
$ |
— |
|
|
$ |
— |
|
Interest rate swap agreements |
|
— |
|
|
— |
|
|
— |
|
|
56,158,068 |
|
Swaptions, net |
|
— |
|
|
— |
|
|
(62,713 |
) |
|
1,376,000 |
|
TBAs |
|
43,464 |
|
|
3,565,000 |
|
|
(109,426 |
) |
|
(1,804,000 |
) |
U.S. Treasury futures |
|
— |
|
|
— |
|
|
(4,017 |
) |
|
875,000 |
|
Total |
|
$ |
117,368 |
|
|
$ |
3,944,239 |
|
|
$ |
(176,156 |
) |
|
$ |
56,605,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
Derivative Assets |
|
Derivative Liabilities |
(in thousands) |
|
Fair Value |
|
Notional |
|
Fair Value |
|
Notional |
Inverse interest-only securities |
|
$ |
69,469 |
|
|
$ |
397,137 |
|
|
$ |
— |
|
|
$ |
— |
|
Interest rate swap agreements |
|
102,268 |
|
|
2,725,000 |
|
|
— |
|
|
36,977,470 |
|
Swaptions, net |
|
7,801 |
|
|
1,257,000 |
|
|
— |
|
|
— |
|
TBAs |
|
8,011 |
|
|
9,584,000 |
|
|
(6,711 |
) |
|
(2,157,000 |
) |
U.S. Treasury futures |
|
502 |
|
|
380,000 |
|
|
— |
|
|
— |
|
Markit IOS total return swaps |
|
— |
|
|
— |
|
|
(29 |
) |
|
41,890 |
|
Total |
|
$ |
188,051 |
|
|
$ |
14,343,137 |
|
|
$ |
(6,740 |
) |
|
$ |
34,862,360 |
|
|
| 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:
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|
|
|
|
|
|
|
|
|
Derivative Instruments |
|
Location of Gain (Loss) Recognized in Income |
|
Amount of Gain (Loss) Recognized in Income |
|
|
|
|
Three Months Ended |
(in thousands) |
|
|
|
March 31, |
|
|
|
|
2020 |
|
2019 |
Interest rate risk management |
|
|
|
|
TBAs |
|
(Loss) gain on other derivative instruments |
|
$ |
(166,058 |
) |
|
$ |
109,511 |
|
Short U.S. Treasuries |
|
(Loss) gain on other derivative instruments |
|
— |
|
|
(6,801 |
) |
U.S. Treasury futures |
|
(Loss) gain on other derivative instruments |
|
25,972 |
|
|
3,727 |
|
Put and call options for TBAs |
|
(Loss) gain on other derivative instruments |
|
— |
|
|
(7,666 |
) |
Interest rate swaps - Payers |
|
Loss on interest rate swap, cap and swaption agreements |
|
(1,037,335 |
) |
|
(238,968 |
) |
Interest rate swaps - Receivers |
|
Loss on interest rate swap, cap and swaption agreements |
|
899,953 |
|
|
163,601 |
|
Swaptions |
|
Loss on interest rate swap, cap and swaption agreements |
|
(113,214 |
) |
|
(4,532 |
) |
Interest rate caps |
|
Loss on interest rate swap, cap and swaption agreements |
|
— |
|
|
(3,360 |
) |
Markit IOS total return swaps |
|
(Loss) gain on other derivative instruments |
|
(2,430 |
) |
|
(580 |
) |
Non-risk management |
|
|
|
|
|
|
Inverse interest-only securities |
|
(Loss) gain on other derivative instruments |
|
9,048 |
|
|
6,087 |
|
Total |
|
|
|
$ |
(384,064 |
) |
|
$ |
21,019 |
|
|
| 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, 2020 and 2019:
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|
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|
|
|
|
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|
|
|
Three Months Ended March 31, 2020 |
(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 |
$ |
397,137 |
|
|
$ |
— |
|
|
$ |
(17,898 |
) |
|
$ |
379,239 |
|
|
$ |
388,891 |
|
|
$ |
— |
|
Interest rate swap agreements |
39,702,470 |
|
|
24,383,111 |
|
|
(7,927,513 |
) |
|
56,158,068 |
|
|
42,667,316 |
|
|
408,053 |
|
Swaptions, net |
1,257,000 |
|
|
430,000 |
|
|
(311,000 |
) |
|
1,376,000 |
|
|
2,055,484 |
|
|
(46,200 |
) |
TBAs, net |
7,427,000 |
|
|
12,491,000 |
|
|
(18,157,000 |
) |
|
1,761,000 |
|
|
4,939,769 |
|
|
(98,795 |
) |
U.S. Treasury futures |
(380,000 |
) |
|
8,230,000 |
|
|
(6,975,000 |
) |
|
875,000 |
|
|
923,571 |
|
|
30,499 |
|
Markit IOS total return swaps |
41,890 |
|
|
— |
|
|
(41,890 |
) |
|
— |
|
|
40,788 |
|
|
(2,077 |
) |
Total |
$ |
48,445,497 |
|
|
$ |
45,534,111 |
|
|
$ |
(33,430,301 |
) |
|
$ |
60,549,307 |
|
|
$ |
51,015,819 |
|
|
$ |
291,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019 |
(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 |
$ |
476,299 |
|
|
$ |
— |
|
|
$ |
(19,866 |
) |
|
$ |
456,433 |
|
|
$ |
466,911 |
|
|
$ |
— |
|
Interest rate swap agreements |
29,523,605 |
|
|
10,594,633 |
|
|
(1,721,961 |
) |
|
38,396,277 |
|
|
35,057,414 |
|
|
(10,183 |
) |
Interest rate cap contracts |
2,500,000 |
|
|
— |
|
|
— |
|
|
2,500,000 |
|
|
2,500,000 |
|
|
— |
|
Swaptions, net |
63,000 |
|
|
5,900,000 |
|
|
(63,000 |
) |
|
5,900,000 |
|
|
1,152,511 |
|
|
(24,315 |
) |
TBAs, net |
6,484,000 |
|
|
42,733,000 |
|
|
(39,049,000 |
) |
|
10,168,000 |
|
|
8,814,300 |
|
|
70,915 |
|
Short U.S. Treasuries |
(800,000 |
) |
|
— |
|
|
800,000 |
|
|
— |
|
|
(185,327 |
) |
|
(23,172 |
) |
U.S. Treasury futures |
— |
|
|
1,310,000 |
|
|
— |
|
|
1,310,000 |
|
|
143,889 |
|
|
— |
|
Put and call options for TBAs, net |
(1,767,000 |
) |
|
— |
|
|
1,767,000 |
|
|
— |
|
|
(447,739 |
) |
|
(32,962 |
) |
Markit IOS total return swaps |
48,265 |
|
|
— |
|
|
(1,192 |
) |
|
47,073 |
|
|
47,456 |
|
|
— |
|
Total |
$ |
36,528,169 |
|
|
$ |
60,537,633 |
|
|
$ |
(38,288,019 |
) |
|
$ |
58,777,783 |
|
|
$ |
47,549,415 |
|
|
$ |
(19,717 |
) |
____________________
(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, 2020 and December 31, 2019:
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
|
|
|
|
|
|
|
Net Carrying Value (4)
|
(in thousands) |
Notional Amount (1)
|
|
Cost Basis (2)
|
|
Market Value (3)
|
|
Derivative Assets |
|
Derivative Liabilities |
Purchase contracts |
$ |
5,264,000 |
|
|
$ |
5,535,851 |
|
|
$ |
5,568,520 |
|
|
$ |
43,464 |
|
|
$ |
(10,795 |
) |
Sale contracts |
(3,503,000 |
) |
|
(3,623,018 |
) |
|
(3,721,649 |
) |
|
— |
|
|
(98,631 |
) |
TBAs, net |
$ |
1,761,000 |
|
|
$ |
1,912,833 |
|
|
$ |
1,846,871 |
|
|
$ |
43,464 |
|
|
$ |
(109,426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
Net Carrying Value (4)
|
(in thousands) |
Notional Amount (1)
|
|
Cost Basis (2)
|
|
Market Value (3)
|
|
Derivative Assets |
|
Derivative Liabilities |
Purchase contracts |
$ |
10,223,000 |
|
|
$ |
10,557,745 |
|
|
$ |
10,565,556 |
|
|
$ |
8,011 |
|
|
$ |
(200 |
) |
Sale contracts |
(2,796,000 |
) |
|
(2,902,858 |
) |
|
(2,909,369 |
) |
|
— |
|
|
(6,511 |
) |
TBAs, net |
$ |
7,427,000 |
|
|
$ |
7,654,887 |
|
|
$ |
7,656,187 |
|
|
$ |
8,011 |
|
|
$ |
(6,711 |
) |
___________________
|
|
(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 Interest Rate Swap Payers |
As of March 31, 2020 and December 31, 2019, 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 three-month LIBOR rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(notional in thousands) |
|
|
|
|
|
|
March 31, 2020 |
Swaps Maturities |
|
Notional Amount |
|
Weighted Average Fixed Pay Rate |
|
Weighted Average Receive Rate |
|
Weighted Average Maturity (Years) |
2020 |
|
$ |
3,640,000 |
|
|
1.806 |
% |
|
1.352 |
% |
|
0.58 |
2021 |
|
15,740,977 |
|
|
1.681 |
% |
|
1.685 |
% |
|
1.22 |
2022 |
|
2,578,640 |
|
|
1.911 |
% |
|
1.176 |
% |
|
2.49 |
2023 |
|
215,000 |
|
|
3.057 |
% |
|
1.683 |
% |
|
3.65 |
2024 and Thereafter |
|
8,739,092 |
|
|
2.224 |
% |
|
1.555 |
% |
|
6.95 |
Total |
|
$ |
30,913,709 |
|
|
1.878 |
% |
|
1.580 |
% |
|
2.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(notional in thousands) |
|
|
|
|
|
|
December 31, 2019 |
Swaps Maturities |
|
Notional Amount |
|
Weighted Average Fixed Pay Rate |
|
Weighted Average Receive Rate |
|
Weighted Average Maturity (Years) |
2020 |
|
$ |
3,640,000 |
|
|
1.806 |
% |
|
1.937 |
% |
|
0.83 |
2021 |
|
15,740,977 |
|
|
1.681 |
% |
|
1.910 |
% |
|
1.47 |
2022 |
|
2,578,640 |
|
|
1.911 |
% |
|
1.901 |
% |
|
2.74 |
2023 |
|
215,000 |
|
|
3.057 |
% |
|
1.910 |
% |
|
3.90 |
2024 and Thereafter |
|
8,739,092 |
|
|
2.224 |
% |
|
1.935 |
% |
|
7.20 |
Total |
|
$ |
30,913,709 |
|
|
1.878 |
% |
|
1.921 |
% |
|
3.14 |
|
| Schedule of Interest Rate Swap Receivers |
Additionally, as of March 31, 2020 and December 31, 2019, 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 three-month LIBOR rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(notional in thousands) |
|
|
|
|
|
|
March 31, 2020 |
Swaps Maturities |
|
Notional Amounts |
|
Weighted Average Pay Rate |
|
Weighted Average Fixed Receive Rate |
|
Weighted Average Maturity (Years) |
2020 |
|
$ |
— |
|
|
— |
% |
|
— |
% |
|
0.00 |
2021 |
|
9,247,416 |
|
|
1.188 |
% |
|
0.799 |
% |
|
0.96 |
2022 |
|
6,139,622 |
|
|
1.152 |
% |
|
0.527 |
% |
|
1.98 |
2023 |
|
— |
|
|
— |
% |
|
— |
% |
|
0.00 |
2024 and Thereafter |
|
9,857,321 |
|
|
1.319 |
% |
|
1.418 |
% |
|
8.36 |
Total |
|
$ |
25,244,359 |
|
|
1.255 |
% |
|
0.943 |
% |
|
3.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(notional in thousands) |
|
|
|
|
|
|
December 31, 2019 |
Swaps Maturities |
|
Notional Amounts |
|
Weighted Average Pay Rate |
|
Weighted Average Fixed Receive Rate |
|
Weighted Average Maturity (Years) |
2020 |
|
$ |
250,000 |
|
|
1.953 |
% |
|
2.258 |
% |
|
0.06 |
2021 |
|
915,000 |
|
|
1.894 |
% |
|
2.516 |
% |
|
1.10 |
2022 |
|
— |
|
|
— |
% |
|
— |
% |
|
0.00 |
2023 |
|
— |
|
|
— |
% |
|
— |
% |
|
0.00 |
2024 and Thereafter |
|
7,623,761 |
|
|
1.937 |
% |
|
2.232 |
% |
|
8.64 |
Total |
|
$ |
8,788,761 |
|
|
1.933 |
% |
|
2.262 |
% |
|
7.61 |
|
| Schedule of Interest Rate Swaptions |
As of March 31, 2020 and December 31, 2019, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
(notional and dollars in thousands) |
|
Option |
|
Underlying Swap |
Swaption |
|
Expiration |
|
Cost Basis |
|
Fair Value |
|
Average Months to Expiration |
|
Notional Amount |
|
Average Pay Rate |
|
Average Receive Rate |
|
Average Term (Years) |
Purchase contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payer |
|
< 6 Months |
|
$ |
9,000 |
|
|
$ |
2 |
|
|
0.93 |
|
|
$ |
2,550,000 |
|
|
2.27 |
% |
|
3M Libor |
|
10.0 |
Sale contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receiver |
|
< 6 Months |
|
$ |
(4,500 |
) |
|
$ |
(62,715 |
) |
|
0.93 |
|
|
$ |
(1,174,000 |
) |
|
3M Libor |
|
1.26 |
% |
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
(notional and dollars in thousands) |
|
Option |
|
Underlying Swap |
Swaption |
|
Expiration |
|
Cost |
|
Fair Value |
|
Average Months to Expiration |
|
Notional Amount |
|
Average Fixed Pay Rate |
|
Average Receive Rate |
|
Average Term (Years) |
Purchase contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payer |
|
< 6 Months |
|
$ |
24,700 |
|
|
$ |
16,095 |
|
|
3.20 |
|
|
$ |
7,525,000 |
|
|
2.27 |
% |
|
3M Libor |
|
10.0 |
Receiver |
|
< 6 Months |
|
$ |
4,100 |
|
|
$ |
342 |
|
|
1.10 |
|
|
$ |
500,000 |
|
|
3M Libor |
|
1.55 |
% |
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receiver |
|
< 6 Months |
|
$ |
(20,800 |
) |
|
$ |
(8,636 |
) |
|
3.24 |
|
|
$ |
(6,768,000 |
) |
|
3M Libor |
|
1.28 |
% |
|
10.0 |
|
| Schedule of Total Return Swaps |
As of December 31, 2019, the Company had the following total return swap agreements in place:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(notional and dollars in thousands) |
|
|
|
|
|
December 31, 2019 |
Maturity Date |
|
Current Notional Amount |
|
Fair Value |
|
Cost Basis |
|
Unrealized Gain (Loss) |
January 12, 2043 |
|
$ |
(18,625 |
) |
|
$ |
5 |
|
|
$ |
(30 |
) |
|
$ |
35 |
|
January 12, 2044 |
|
(23,265 |
) |
|
(34 |
) |
|
(29 |
) |
|
(5 |
) |
Total |
|
$ |
(41,890 |
) |
|
$ |
(29 |
) |
|
$ |
(59 |
) |
|
$ |
30 |
|
|