Annual report pursuant to Section 13 and 15(d)

Derivative Instruments and Hedging Activities (Tables)

v3.22.0.1
Derivative Instruments and Hedging Activities (Tables)
 12 Months Ended
Dec. 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 December 31, 2021 and December 31, 2020:
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 
U.S. Treasury and Eurodollar futures, net 35,362  (5,829,600) —  — 
Total $ 80,134  $ 18,327,801  $ (53,658) $ (1,168,000)
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 consolidated statements of comprehensive (loss) income:
Derivative Instruments Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income
Year Ended
(in thousands) December 31,
2021 2020 2019
Interest rate risk management:
TBAs
(Loss) gain on other derivative instruments
 $ (193,479) $ 60,798  $ 214,414 
Short U.S. Treasuries
(Loss) gain on other derivative instruments
 —  —  (6,801)
U.S. Treasury and Eurodollar futures
(Loss) gain on other derivative instruments
 (49,213) 18,143  44,474 
Put and call options for TBAs
(Loss) gain on other derivative instruments
 (5,683) —  (7,666)
Interest rate swaps - Payers
Gain (loss) on interest rate swap, cap and swaption agreements
 92,317  (1,128,788) (637,307)
Interest rate swaps - Receivers
Gain (loss) on interest rate swap, cap and swaption agreements
 (66,828) 879,289  461,801 
Swaptions
Gain (loss) on interest rate swap, cap and swaption agreements
 16,602  (61,307) 74,901 
Interest rate caps
Gain (loss) on interest rate swap, cap and swaption agreements
 —  —  (7,684)
Markit IOS total return swaps
(Loss) gain on other derivative instruments
 —  (2,430) (1,213)
Non-risk management:
Inverse interest-only securities
(Loss) gain on other derivative instruments
 (2,908) 13,512  16,790 
Total $ (209,192) $ (220,783) $ 151,709 
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, 2021 and 2020:
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)
Put and call options for TBAs, net —  1,500,000  (1,500,000) —  267,123  (5,683)
U.S. Treasury and Eurodollar futures
 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)
Year Ended December 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  $ —  $ (78,975) $ 318,162  $ 360,000  $ (116)
Interest rate swap agreements 39,702,470  56,867,740  (83,923,869) 12,646,341  27,137,669  (334,458)
Swaptions, net 1,257,000  6,767,000  (4,274,000) 3,750,000  2,188,661  (53,290)
TBAs, net 7,427,000  60,103,000  (62,333,000) 5,197,000  4,540,759  42,499 
U.S. Treasury and Eurodollar futures
 (380,000) 13,385,800  (10,984,700) 2,021,100  791,420  14,996 
Markit IOS total return swaps 41,890  —  (41,890) —  10,141  (2,077)
Total $ 48,445,497  $ 137,123,540  $ (161,636,434) $ 23,932,603  $ 35,028,650  $ (332,446)
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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, 2021 and December 31, 2020:
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)
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)
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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 U.S. Treasury and Eurodollar Futures The following table summarizes certain characteristics of the Company’s U.S. Treasury and Eurodollar futures as of December 31, 2021 and December 31, 2020:
(dollars in thousands) December 31, 2021 December 31, 2020
Type & Maturity Notional Amount Carrying Value Weighted Average Days to Expiration Notional Amount Carrying Value Weighted Average Days to Expiration
U.S. Treasury futures - 10 year $ 687,900  $ 1,809  90 $ 2,021,100  $ 3,675  90
Eurodollar futures - 3 month
≤ 1 year (3,582,000) 15,121  213 —  —  0
> 1 and ≤ 2 years (2,269,500) 14,952  560 —  —  0
> 2 and ≤ 3 years (666,000) 3,480  854 —  —  0
Total futures $ (5,829,600) $ 35,362  370 $ 2,021,100  $ 3,675  90
Schedule of Interest Rate Swap Payers As of December 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, 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
(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 December 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 OIS or SOFR):
(notional in thousands)
December 31, 2021
Swaps Maturities Notional Amounts 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
(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, 2021 and December 31, 2020, the Company had the following outstanding interest rate swaptions:
December 31, 2021
(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 $ 11,314  $ 3,539  5.33  $ 886,000  2.26  % 3M LIBOR 10.0
Sale contracts:
Payer ≥ 6 Months $ (26,329) $ (23,958) 17.79  $ (780,000) 1.72  % 3M LIBOR 10.0
Receiver < 6 Months $ (10,640) $ (6,856) 5.11  $ (1,087,000) 3M LIBOR 1.26  % 10.0
Receiver ≥ 6 Months $ (26,329) $ (24,468) 18.91  $ (780,000) 3M LIBOR 1.72  % 10.0
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  % 3M LIBOR 10.0
Receiver < 6 Months $ 3,010  $ —  0.97  $ 2,000,000  3M LIBOR 0.23  % 10.0
Sale contracts:
Receiver < 6 Months $ (2,600) $ (3,044) 5.13  $ (1,050,000) 3M LIBOR 0.55  % 10.0