Annual report pursuant to Section 13 and 15(d)

Derivative Instruments and Hedging Activities (Tables)

v3.22.4
Derivative Instruments and Hedging Activities (Tables)
 12 Months Ended
Dec. 31, 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 December 31, 2022 and December 31, 2021:
December 31, 2022
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 15,293  $ 196,456  $ —  $ — 
Interest rate swap agreements
 —  —  —  — 
Swaptions, net —  —  —  — 
TBAs 11,145  (650,000) (34,048) 4,476,000 
Futures, net —  (18,285,452) —  — 
Total $ 26,438  $ (18,738,996) $ (34,048) $ 4,476,000 
December 31, 2021
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 41,367  $ 247,101  $ —  $ — 
Interest rate swap agreements
 —  20,387,300  —  — 
Swaptions, net —  —  (51,743) (1,761,000)
TBAs 3,405  3,523,000  (1,915) 593,000 
Futures, net 35,362  (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 consolidated statements of comprehensive loss:
Derivative Instruments Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income
Year Ended
(in thousands) December 31,
2022 2021 2020
Interest rate risk management:
TBAs
Gain (loss) on other derivative instruments
 $ (487,713) $ (193,479) $ 60,798 
Futures
Gain (loss) on other derivative instruments
 514,467  (49,213) 18,143 
Options on TBAs
Gain (loss) on other derivative instruments
 —  (5,683) — 
Options on futures
Gain (loss) on other derivative instruments
 (2,224) —  — 
Interest rate swaps - Payers
Gain (loss) on interest rate swap, cap and swaption agreements
 772,829  92,317  (1,128,788)
Interest rate swaps - Receivers
Gain (loss) on interest rate swap, cap and swaption agreements
 (756,744) (66,828) 879,289 
Swaptions
Gain (loss) on interest rate swap, cap and swaption agreements
 13,414  16,602  (61,307)
Markit IOS total return swaps
Gain (loss) on other derivative instruments
 —  —  (2,430)
Non-risk management:
Inverse interest-only securities
Gain (loss) on other derivative instruments
 (15,220) (2,908) 13,512 
Total $ 38,809  $ (209,192) $ (220,783)
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 years ended December 31, 2022 and 2021:
Year Ended December 31, 2022
(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 $ 247,101  $ —  $ (50,645) $ 196,456  $ 219,813  $ — 
Interest rate swap agreements 20,387,300  22,398,148  (42,785,448) —  12,424,320  29,543 
Swaptions, net (1,761,000) (1,000,000) 2,761,000  —  (1,274,101) 13,654 
TBAs, net 4,116,000  69,828,000  (70,118,000) 3,826,000  4,743,504  (463,320)
Futures, net
 (5,829,600) (68,777,002) 56,321,150  (18,285,452) (13,921,620) 487,267 
Options on futures, net
 —  2,000  (2,000) —  416  (2,224)
Total $ 17,159,801  $ 22,451,146  $ (53,873,943) $ (14,262,996) $ 2,192,332  $ 64,920 
Year Ended December 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  $ —  $ (71,061) $ 247,101  $ 282,380  $ (398)
Interest rate swap agreements 12,646,341  10,107,476  (2,366,517) 20,387,300  15,870,590  (5,778)
Swaptions, net 3,750,000  (2,871,000) (2,640,000) (1,761,000) (428,586) 8,147 
TBAs, net 5,197,000  90,927,000  (92,008,000) 4,116,000  6,538,666  (175,368)
Options on TBAs, net —  1,500,000  (1,500,000) —  267,123  (5,683)
Futures, net
 2,021,100  7,447,600  (15,298,300) (5,829,600) (2,197,734) (80,867)
Total $ 23,932,603  $ 107,111,076  $ (113,883,878) $ 17,159,801  $ 20,332,439  $ (259,947)
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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 December 31, 2022 and December 31, 2021:
December 31, 2022
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 4,826,000  $ 4,802,009  $ 4,767,989  $ 28  $ (34,048)
Sale contracts (1,000,000) (878,711) (867,594) 11,117  — 
TBAs, net $ 3,826,000  $ 3,923,298  $ 3,900,395  $ 11,145  $ (34,048)
December 31, 2021
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative 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 consolidated balance sheets.
Schedule of Futures The following table summarizes certain characteristics of the Company’s futures as of December 31, 2022 and December 31, 2021:
(dollars in thousands) December 31, 2022 December 31, 2021
Type & Maturity Notional Amount Carrying Value Weighted Average Days to Expiration Notional Amount Carrying Value Weighted Average Days to Expiration
U.S. Treasury futures - 2 year $ (562,200) $ —  95 $ —  $ —  0
U.S. Treasury futures - 5 year (3,855,500) —  95 —  —  0
U.S. Treasury futures - 10 year (2,397,200) —  90 687,900  1,809  90
U.S. Treasury futures - 20 year 101,000  —  90 —  —  0
Federal Funds futures - 30 day (7,948,552) —  92 —  —  0
Eurodollar futures - 3 month:
≤ 1 year (2,957,000) —  184 (3,582,000) 15,121  213
> 1 and ≤ 2 years (666,000) —  489 (2,269,500) 14,952  560
> 2 and ≤ 3 years —  —  0 (666,000) 3,480  854
Total futures $ (18,285,452) $ —  122 $ (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 Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Maturity (Years)
2022 $ 7,415,818  0.420  % 0.070  % 0.66
2023 2,582,084  0.113  % 0.068  % 1.51
2024 —  —  % —  % 0.00
2025 377,610  1.030  % 0.050  % 3.96
2026 and Thereafter 2,782,057  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 Maturities Notional Amount Weighted Average Pay Rate Weighted Average Fixed Receive Rate Weighted Average Maturity (Years)
2022 $ 2,221,658  0.070  % 0.118  % 1.19
2023 —  —  % —  % 0.00
2024 —  —  % —  % 0.00
2025 —  —  % —  % 0.00
2026 and Thereafter 5,008,073  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) Option Underlying Swap
Swaption Expiration Cost Fair Value Average Months to Expiration Notional 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.