Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments and Hedging Activities (Tables)

v3.21.1
Derivative Instruments and Hedging Activities (Tables)
 3 Months Ended
Mar. 31, 2021
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, 2021 and December 31, 2020:
March 31, 2021
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 54,384  $ 300,597  $ —  $ — 
Interest rate swap agreements
 —  15,221,597  —  — 
Swaptions, net —  —  —  — 
TBAs 761  750,000  (5,584) 4,050,000 
U.S. Treasury and Eurodollar futures, net —  —  (10,578) (1,185,100)
Total $ 55,145  $ 16,272,194  $ (16,162) $ 2,864,900 
December 31, 2020
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 62,200  $ 318,162  $ —  $ — 
Interest rate swap agreements
 —  —  —  12,646,341 
Swaptions, net —  —  (596) 3,750,000 
TBAs 30,062  7,700,000  (10,462) (2,503,000)
U.S. Treasury futures, net 3,675  2,021,100  —  — 
Total $ 95,937  $ 10,039,262  $ (11,058) $ 13,893,341 
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,
2021 2020
Interest rate risk management
TBAs
Loss on other derivative instruments
 $ (187,946) $ (166,058)
U.S. Treasury and Eurodollar futures
Loss on other derivative instruments
 (85,141) 25,972 
Interest rate swaps - Payers
Loss on interest rate swap and swaption agreements
 80,313  (1,037,335)
Interest rate swaps - Receivers
Loss on interest rate swap and swaption agreements
 (106,373) 899,953 
Swaptions
Loss on interest rate swap and swaption agreements
 10,461  (113,214)
Markit IOS total return swaps
Loss on other derivative instruments
 —  (2,430)
Non-risk management
Inverse interest-only securities
Loss on other derivative instruments
 (2,924) 9,048 
Total $ (291,610) $ (384,064)
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, 2021 and 2020:
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
 2,021,100  970,300  (4,176,500) (1,185,100) 573,478  (70,897)
Markit IOS total return swaps —  —  —  —  —  — 
Total $ 23,932,603  $ 24,884,807  $ (29,680,316) $ 19,137,094  $ 19,986,874  $ (240,708)
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 
____________________
(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, 2021 and December 31, 2020:
March 31, 2021
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 4,900,000  $ 5,128,819  $ 5,124,270  $ 761  $ (5,310)
Sale contracts (100,000) (99,421) (99,695) —  (274)
TBAs, net $ 4,800,000  $ 5,029,398  $ 5,024,575  $ 761  $ (5,584)
December 31, 2020
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 7,700,000  $ 8,102,344  $ 8,132,406  $ 30,062  $ — 
Sale contracts (2,503,000) (2,640,465) (2,650,927) —  (10,462)
TBAs, net $ 5,197,000  $ 5,461,879  $ 5,481,479  $ 30,062  $ (10,462)
___________________
(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, 2021 and December 31, 2020, 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 (LIBOR or the OIS rate):
(notional in thousands)
March 31, 2021
Swaps Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Maturity (Years)
2021 $ —  —  % —  % 0.00
2022 7,415,818  0.042  % 0.060  % 1.41
2023 2,281,500  0.023  % 0.060  % 2.23
2024 —  —  % —  % 0.00
2025 and Thereafter 1,697,500  0.358  % 0.079  % 6.66
Total $ 11,394,818  0.085  % 0.063  % 2.36
(notional in thousands)
December 31, 2020
Swaps Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Maturity (Years)
2021 $ —  —  % —  % 0.00
2022 7,415,818  0.042  % 0.090  % 1.66
2023 2,281,500  0.023  % 0.090  % 2.48
2024 —  —  % —  % 0.00
2025 and Thereafter 1,497,500  0.257  % 0.090  % 6.49
Total $ 11,194,818  0.067  % 0.090  % 2.47
Schedule of Interest Rate Swap Receivers
Additionally, as of March 31, 2021 and December 31, 2020, 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 (LIBOR or the OIS rate):
(notional in thousands)
March 31, 2021
Swaps Maturities Notional Amounts Weighted Average Pay Rate Weighted Average Fixed Receive Rate Weighted Average Maturity (Years)
2021 $ —  —  % —  % 0.00
2022 —  —  % —  % 0.00
2023 2,221,658  0.060  % 0.118  % 1.94
2024 —  —  % —  % 0.00
2025 and Thereafter 1,605,121  0.060  % 0.608  % 9.34
Total $ 3,826,779  0.060  % 0.323  % 5.05
(notional in thousands)
December 31, 2020
Swaps Maturities Notional Amounts Weighted Average Pay Rate Weighted Average Fixed Receive Rate Weighted Average Maturity (Years)
2021 $ —  —  % —  % 0.00
2022 —  —  % —  % 0.00
2023 —  —  % —  % 0.00
2024 —  —  % —  % 0.00
2025 and Thereafter 1,451,523  0.090  % 0.468  % 9.49
Total $ 1,451,523  0.090  % 0.468  % 9.49
Schedule of Interest Rate Swaptions As of December 31, 2020, the Company had the following outstanding interest rate swaptions:
December 31, 2020
(notional and dollars in thousands) Option Underlying Swap
Swaption Expiration Cost Fair Value Average Months to Expiration Notional Amount Average Pay Rate Average Receive Rate Average Term (Years)
Purchase contracts:
Payer < 6 Months $ 7,210  $ 2,448  4.23  $ 2,800,000  1.32  % SOFR 10.0
Receiver < 6 Months $ 3,010  $ —  0.97  $ 2,000,000  SOFR 0.23  % 10.0
Sale contracts:
Receiver < 6 Months $ (2,600) $ (3,044) 5.13  $ (1,050,000) SOFR 0.55  % 10.0