Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments and Hedging Activities (Tables)

v3.24.1.u1
Derivative Instruments and Hedging Activities (Tables)
 3 Months Ended
Mar. 31, 2024
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, 2024 and December 31, 2023:
March 31, 2024
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 9,885  $ 156,527  $ —  $ — 
Interest rate swap agreements
 —  9,822,112  —  — 
Swaptions, net —  —  —  — 
TBAs 14,512  3,968,000  (3,027) (518,000)
Futures, net —  (5,638,800) —  — 
Total $ 24,397  $ 8,307,839  $ (3,027) $ (518,000)
December 31, 2023
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 12,292  $ 163,735  $ —  $ — 
Interest rate swap agreements
 —  —  —  17,788,114 
Swaptions, net 19  (200,000) —  — 
TBAs 72,980  2,979,000  (21,506) 518,000 
Futures, net —  —  —  (6,203,050)
Total $ 85,291  $ 2,942,735  $ (21,506) $ 12,103,064 
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 income (loss):
Derivative Instruments Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income
Three Months Ended
(in thousands) March 31,
2024 2023
Interest rate risk management:
TBAs
Gain (loss) on other derivative instruments
 $ (59,180) $ (17,164)
Futures
Gain (loss) on other derivative instruments
 108,936  (140,087)
Options on futures
Gain (loss) on other derivative instruments
 (127) — 
Interest rate swaps - Payers
Gain (loss) on interest rate swap and swaption agreements
 194,430  (71,760)
Interest rate swaps - Receivers
Gain (loss) on interest rate swap and swaption agreements
 (95,951) (10,368)
Swaptions
Gain (loss) on interest rate swap and swaption agreements
 31  (26)
Non-risk management:
Inverse interest-only securities
Gain (loss) on other derivative instruments
 (2,030) 1,480 
Total $ 146,109  $ (237,925)
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, 2024 and 2023:
Three Months Ended March 31, 2024
(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 $ 163,735  $ —  $ (7,208) $ 156,527  $ 160,491  $ — 
Interest rate swap agreements 17,788,114  6,567,062  (14,533,064) 9,822,112  15,136,445  13,988 
Swaptions, net (200,000) (500,000) 700,000  —  (232,967) (98)
TBAs, net 3,497,000  12,173,000  (12,220,000) 3,450,000  3,037,747  (19,190)
Futures, net
 (6,203,050) (7,738,100) 8,302,350  (5,638,800) (6,576,900) (8,714)
Options on futures, net
 —  —  —  —  —  (127)
Total $ 15,045,799  $ 10,501,962  $ (17,757,922) $ 7,789,839  $ 11,524,816  $ (14,141)
Three Months Ended March 31, 2023
(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 $ 196,456  $ —  $ (8,371) $ 188,085  $ 192,729  $ — 
Interest rate swap agreements —  9,992,941  (1,588,069) 8,404,872  3,196,969  (18,580)
Swaptions, net —  (200,000) —  (200,000) (57,778) — 
TBAs, net 3,826,000  14,666,000  (14,774,000) 3,718,000  4,073,467  (88,483)
Futures, net
 (18,285,452) (13,034,050) 24,373,952  (6,945,550) (15,622,322) 131 
Total $ (14,262,996) $ 11,424,891  $ 8,003,512  $ 5,165,407  $ (8,216,935) $ (106,932)
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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 March 31, 2024 and December 31, 2023:
March 31, 2024
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 4,193,000  $ 4,129,470  $ 4,143,411  $ 14,512  $ (571)
Sale contracts (743,000) (707,538) (709,994) —  (2,456)
TBAs, net $ 3,450,000  $ 3,421,932  $ 3,433,417  $ 14,512  $ (3,027)
December 31, 2023
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 4,194,000  $ 3,827,271  $ 3,898,874  $ 72,980  $ (1,377)
Sale contracts (697,000) (656,723) (676,852) —  (20,129)
TBAs, net $ 3,497,000  $ 3,170,548  $ 3,222,022  $ 72,980  $ (21,506)
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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 condensed consolidated balance sheets.
Schedule of Futures The following table summarizes certain characteristics of the Company’s futures as of March 31, 2024 and December 31, 2023:
(dollars in thousands) March 31, 2024 December 31, 2023
Type & Maturity Notional Amount Carrying Value Weighted Average Months to Expiration Notional Amount Carrying Value Weighted Average Months to Expiration
U.S. Treasury futures - 2 year $ (497,400) $ —  2.93 $ (549,600) $ —  2.89
U.S. Treasury futures - 5 year (1,354,200) —  2.93 (1,876,700) —  2.89
U.S. Treasury futures - 10 year (1,925,500) —  2.60 (983,300) —  2.60
U.S. Treasury futures - 20 year (40,700) —  2.60 (388,200) —  2.89
Eris SOFR swap futures - 10 year
 (30,000) —  122.73 —  —  —
SOFR futures
≤ 1 year (1,416,000) —  5.68 (1,842,750) —  6.05
> 1 and ≤ 2 years (375,000) —  16.06 (562,500) —  17.56
Total futures $ (5,638,800) $ —  5.01 $ (6,203,050) $ —  5.10
Schedule of Interest Rate Swap Payers As of March 31, 2024 and December 31, 2023, 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)
March 31, 2024
Swaps Maturities
Notional Amount (1)
Weighted Average Fixed Pay Rate (2)
Weighted Average Receive Rate Weighted Average Maturity (Years)
≤ 1 year $ 2,647,671  4.730  % 5.340  % 0.96
> 1 and ≤ 3 years 1,968,891  4.087  % 5.340  % 1.76
> 3 and ≤ 5 years 1,784,642  3.546  % 5.340  % 3.78
> 5 and ≤ 7 years —  —  % —  % 0.00
> 7 and ≤ 10 years 1,005,904  3.577  % 5.340  % 9.00
> 10 years 466,637  3.753  % 5.340  % 14.32
Total $ 7,873,745  4.180  % 5.340  % 3.38
(notional in thousands)
December 31, 2023
Swaps Maturities
Notional Amount (1)
Weighted Average Fixed Pay Rate (2)
Weighted Average Receive Rate Weighted Average Maturity (Years)
≤ 1 year $ —  —  % —  % 0.00
> 1 and ≤ 3 years 6,796,772  4.551  % 5.380  % 1.44
> 3 and ≤ 5 years 2,040,444  3.800  % 5.380  % 4.07
> 5 and ≤ 7 years 697,800  4.282  % 5.380  % 6.67
> 7 and ≤ 10 years 2,125,830  3.606  % 5.380  % 9.32
> 10 years 466,637  3.753  % 5.380  % 14.57
Total $ 12,127,483  4.245  % 5.380  % 3.87
____________________
(1)Notional amount includes $1.1 billion and $1.1 billion in forward starting interest rate swaps as of March 31, 2024 and December 31, 2023, respectively.
(2)Weighted averages exclude forward starting interest rate swaps. As of March 31, 2024 and December 31, 2023, the weighted average fixed pay rate on forward starting interest rate swaps was 4.0% and 4.0%, respectively.
Schedule of Interest Rate Swap Receivers
Additionally, as of March 31, 2024 and December 31, 2023, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) risk whereby the Company pays interest at a floating interest rate (OIS or SOFR):
(notional in thousands)
March 31, 2024
Swaps Maturities
Notional Amount (1)
Weighted Average Pay Rate (2)
Weighted Average Fixed Receive Rate (2)
Weighted Average Maturity (Years) (2)
≤ 1 year $ 786,641  5.340  % 4.025  % 0.97
> 1 and ≤ 3 years 641,100  —  % —  % 0.00
> 3 and ≤ 5 years 260,000  5.340  % 3.328  % 3.50
> 5 and ≤ 7 years —  —  % —  % 0.00
> 7 and ≤ 10 years —  —  % —  % 0.00
> 10 years 260,626  5.340  % 3.444  % 19.76
Total $ 1,948,367  5.340  % 3.770  % 5.22
(notional in thousands)
December 31, 2023
Swaps Maturities
Notional Amount (1)
Weighted Average Pay Rate (2)
Weighted Average Fixed Receive Rate (2)
Weighted Average Maturity (Years) (2)
≤ 1 year $ —  —  % —  % 0.00
> 1 and ≤ 3 years 2,470,819  5.380  % 4.204  % 1.36
> 3 and ≤ 5 years 780,000  5.380  % 3.845  % 1.36
> 5 and ≤ 7 years 988,026  5.380  % 4.023  % 4.03
> 7 and ≤ 10 years 1,161,160  5.380  % 4.013  % 9.57
> 10 years 260,626  5.380  % 3.444  % 20.01
Total $ 5,660,631  5.380  % 4.052  % 5.00
____________________
(1)Notional amount includes $641.1 million and $645.2 million in forward starting interest rate swaps as of March 31, 2024 and December 31, 2023, respectively.
(2)Weighted averages exclude forward starting interest rate swaps. As of March 31, 2024 and December 31, 2023, the weighted average fixed receive rate on forward starting interest rate swaps was 4.3% and 4.4%, respectively.
Schedule of Interest Rate Swaptions As of December 31, 2023, the Company had the following outstanding interest rate swaptions:
December 31, 2023
(notional and dollars in thousands) Option Underlying Swap
Swaption Expiration Cost Fair Value Average Months to Expiration Notional Amount Average Fixed Rate Average Term (Years)
Purchase contracts:
Payer < 6 Months $ 480  $ 22  2.40  $ 200,000  5.13  % 1.0
Sale contracts:
Payer < 6 Months $ (332) $ (3) 2.40  $ (400,000) 5.61  % 1.0