Derivative Instruments and Hedging Activities (Tables)

v3.19.2

Derivative Instruments and Hedging Activities (Tables)	6 Months Ended
	Jun. 30, 2019
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 June 30, 2019 and December 31, 2018.     June 30, 2019     Derivative Assets   Derivative Liabilities (in thousands)   Fair Value   Notional   Fair Value   Notional Inverse interest-only securities   $ 76,724   $ 436,611   $ —   $ — Interest rate swap agreements   101,820   2,725,000   —   37,745,277 Swaptions, net   29,959   3,875,000   —   — TBAs   12,649   9,178,000   (170 )   244,000 U.S. Treasury futures   25,843   1,300,000   —   — Markit IOS total return swaps   —   —   (85 )   45,536 Total   $ 246,995   $ 17,514,611   $ (255 )   $ 38,034,813     December 31, 2018     Derivative Assets   Derivative Liabilities (in thousands)   Fair Value   Notional   Fair Value   Notional Inverse interest-only securities   $ 70,813   $ 476,299   $ —   $ — Interest rate swap agreements   187,231   26,798,605   —   2,725,000 Interest rate cap contracts   40,335   2,500,000   —   — Swaptions, net   —   —   (13,456 )   63,000 TBAs   21,602   6,484,000   —   — Put and call options for TBAs, net   —   —   (25,296 )   1,767,000 Short U.S. Treasuries   —   —   (781,455 )   800,000 Markit IOS total return swaps   —   —   (383 )   48,265 Total   $ 319,981   $ 36,258,904   $ (820,590 )   $ 5,403,265
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: Derivative Instruments   Location of Gain (Loss) Recognized in Income   Amount of Gain (Loss) Recognized in Income         Three Months Ended   Six Months Ended (in thousands)       June 30,   June 30,         2019   2018   2019   2018 Interest rate risk management                 TBAs   Gain on other derivative instruments   $ 28,964   $ 12,131   $ 138,475   $ (10,535 ) Short U.S. Treasuries   Gain on other derivative instruments   —   —   (6,801 )   — U.S. Treasury futures   Gain on other derivative instruments   42,721   —   46,448   — Put and call options for TBAs   Gain on other derivative instruments   —   (2,396 )   (7,666 )   29,839 Interest rate swaps - Payers   (Loss) gain on interest rate swap, cap and swaption agreements   (422,602 )   63,991   (661,570 )   307,096 Interest rate swaps - Receivers   (Loss) gain on interest rate swap, cap and swaption agreements   289,626   (43,907 )   453,227   (197,722 ) Swaptions   (Loss) gain on interest rate swap, cap and swaption agreements   48,525   9,049   43,993   70,304 Interest rate caps   (Loss) gain on interest rate swap, cap and swaption agreements   (4,324 )   —   (7,684 )   — Markit IOS total return swaps   Gain on other derivative instruments   103   (220 )   (477 )   673 Non-risk management                     Inverse interest-only securities   Gain on other derivative instruments   8,876   (1,840 )   14,963   (4,249 ) Total       $ (8,111 )   $ 36,808   $ 12,908   $ 195,406
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 and six months ended June 30, 2019 and 2018:   Three Months Ended June 30, 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 $ 456,433   $ —   $ (19,822 )   $ 436,611   $ 447,550   $ — Interest rate swap agreements 38,396,277   3,904,000   (1,830,000 )   40,470,277   38,903,453   14,114 Interest rate cap contracts 2,500,000   —   (2,500,000 )   —   1,779,121   (8,690 ) Swaptions, net 5,900,000   7,300,000   (9,325,000 )   3,875,000   5,959,615   50,089 TBAs, net 10,168,000   36,172,000   (36,918,000 )   9,422,000   8,790,560   76,683 U.S. Treasury futures 1,310,000   3,200,000   (3,210,000 )   1,300,000   1,267,692   20,626 Markit IOS total return swaps 47,073   —   (1,537 )   45,536   46,088   — Total $ 58,777,783   $ 50,576,000   $ (53,804,359 )   $ 55,549,424   $ 57,194,079   $ 152,822   Three Months Ended June 30, 2018 (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 $ 558,942   $ —   $ (29,886 )   $ 529,056   $ 545,159   $ — Interest rate swap agreements 23,598,825   7,740,752   (5,292,313 )   26,047,264   25,377,155   (35,568 ) Swaptions, net (6,175,000 )   (23,000 )   5,460,000   (738,000 )   (4,263,868 )   15,119 TBAs, net 445,000   6,482,000   (3,878,000 )   3,049,000   2,341,879   6,222 Put and call options for TBAs, net (60,000 )   (1,468,000 )   1,208,000   (320,000 )   203,429   (19,661 ) Markit IOS total return swaps 61,521   —   (9,980 )   51,541   59,594   (249 ) Total $ 18,429,288   $ 12,731,752   $ (2,542,179 )   $ 28,618,861   $ 24,263,348   $ (34,137 )   Six Months Ended June 30, 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   $ —   $ (39,688 )   $ 436,611   $ 457,177   $ — Interest rate swap agreements 29,523,605   14,498,633   (3,551,961 )   40,470,277   36,991,058   3,931 Interest rate cap contracts 2,500,000   —   (2,500,000 )   —   2,137,569   (8,690 ) Swaptions, net 63,000   13,200,000   (9,388,000 )   3,875,000   3,569,343   25,774 TBAs, net 6,484,000   78,905,000   (75,967,000 )   9,422,000   8,802,365   147,597 Short U.S. Treasuries (800,000 )   —   800,000   —   (14,365 )   (23,172 ) U.S. Treasury futures —   4,510,000   (3,210,000 )   1,300,000   708,895   20,626 Put and call options for TBAs, net (1,767,000 )   —   1,767,000   —   (222,633 )   (32,962 ) Markit IOS total return swaps 48,265   —   (2,729 )   45,536   46,768   — Total $ 36,528,169   $ 111,113,633   $ (92,092,378 )   $ 55,549,424   $ 52,476,177   $ 133,104   Six Months Ended June 30, 2018 (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 $ 588,246   $ —   $ (59,190 )   $ 529,056   $ 559,844   $ — Interest rate swap agreements 28,482,125   25,349,632   (27,784,493 )   26,047,264   23,272,892   4,138 Swaptions, net 2,666,000   (1,238,000 )   (2,166,000 )   (738,000 )   (3,092,050 )   67,892 TBAs, net (573,000 )   17,713,000   (14,091,000 )   3,049,000   1,563,801   (5,614 ) Put and call options for TBAs, net —   4,602,000   (4,922,000 )   (320,000 )   (327,917 )   38,542 Markit IOS total return swaps 63,507   —   (11,966 )   51,541   60,864   (249 ) Total $ 31,226,878   $ 46,426,632   $ (49,034,649 )   $ 28,618,861   $ 22,037,434   $ 104,709 ____________________ (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 June 30, 2019 and December 31, 2018:   June 30, 2019               Net Carrying Value (4) (in thousands) Notional Amount (1)   Cost Basis (2)   Market Value (3)   Derivative Assets   Derivative Liabilities Purchase contracts $ 9,422,000   $ 9,806,028   $ 9,818,507   $ 12,649   $ (170 ) Sale contracts —   —   —   —   — TBAs, net $ 9,422,000   $ 9,806,028   $ 9,818,507   $ 12,649   $ (170 )   December 31, 2018               Net Carrying Value (4) (in thousands) Notional Amount (1)   Cost Basis (2)   Market Value (3)   Derivative Assets   Derivative Liabilities Purchase contracts $ 6,484,000   $ 6,734,858   $ 6,756,460   $ 21,602   $ — Sale contracts —   —   —   —   — TBAs, net $ 6,484,000   $ 6,734,858   $ 6,756,460   $ 21,602   $ — ___________________ (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 June 30, 2019 and December 31, 2018, 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)             June 30, 2019 Swaps Maturities   Notional Amount   Weighted Average Fixed Pay Rate   Weighted Average Receive Rate   Weighted Average Maturity (Years) 2019   $ 4,236,897   1.781 %   2.569 %   0.30 2020   3,640,000   1.806 %   2.502 %   1.33 2021   10,456,400   2.104 %   2.484 %   1.88 2022   2,470,000   2.002 %   2.430 %   3.25 2023 and Thereafter   8,540,309   2.532 %   2.536 %   6.54 Total   $ 29,343,606   2.136 %   2.509 %   3.05 (notional in thousands)             December 31, 2018 Swaps Maturities   Notional Amount (1)   Weighted Average Fixed Pay Rate (2)   Weighted Average Receive Rate (2)   Weighted Average Maturity (Years) (2) 2019   $ 4,336,897   1.769 %   2.565 %   0.79 2020   3,640,000   1.806 %   2.689 %   1.83 2021   4,117,000   1.550 %   2.687 %   2.69 2022   2,470,000   2.002 %   2.728 %   3.75 2023 and Thereafter   6,842,270   2.495 %   2.636 %   7.60 Total   $ 21,406,167   1.978 %   2.651 %   3.75 ____________________ (1) Notional amount includes $572.0 million in forward starting interest rate swaps as of December 31, 2018. (2) Weighted averages exclude forward starting interest rate swaps. As of December 31, 2018, the weighted average fixed pay rate on forward starting interest rate swaps was 2.8%.
Schedule of Interest Rate Swap Receivers	Additionally, as of June 30, 2019 and December 31, 2018, 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)             June 30, 2019 Swaps Maturities   Notional Amounts   Weighted Average Pay Rate   Weighted Average Fixed Receive Rate   Weighted Average Maturity (Years) 2020   $ 250,000   2.581 %   2.258 %   0.56 2021   2,477,438   2.575 %   2.736 %   1.74 2022   800,000   2.523 %   2.975 %   2.89 2023 and Thereafter   7,599,233   2.505 %   2.648 %   8.00 Total   $ 11,126,671   2.524 %   2.682 %   6.07 (notional in thousands)             December 31, 2018 Swaps Maturities   Notional Amounts   Weighted Average Pay Rate   Weighted Average Fixed Receive Rate   Weighted Average Maturity (Years) 2020   $ 250,000   2.469 %   2.258 %   1.06 2021   2,477,438   2.538 %   2.736 %   2.24 2022   800,000   2.653 %   2.975 %   3.39 2023 and Thereafter   4,590,000   2.653 %   2.757 %   7.37 Total   $ 8,117,438   2.612 %   2.757 %   5.22
Schedule of Interest Rate Swaptions	As of June 30, 2019 and December 31, 2018, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:     June 30, 2019 (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   $ 1,945   $ 878   4.86   $ 1,250,000   2.28 %   3M Libor   5.2 Total Payer       $ 1,945   $ 878   4.86   $ 1,250,000   2.28 %   3M Libor   5.2                                   Receiver   < 6 Months   $ 23,250   $ 29,081   4.71   $ 2,625,000   3M Libor   1.87 %   10.0 Total Receiver       $ 23,250   $ 29,081   4.71   $ 2,625,000   3M Libor   1.87 %   10.0     December 31, 2018 (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   $ 4,855   $ 2,430   5.13   $ 900,000   3.16 %   3M Libor   10.0 Payer   ≥ 6 Months   8,400   5,992   8.60   800,000   3.14 %   3M Libor   10.0 Total Payer       $ 13,255   $ 8,422   7.92   $ 1,700,000   3.15 %   3M Libor   10.0                                   Sale contracts:                                 Receiver   < 6 Months   $ (4,855 )   $ (9,001 )   4.74   $ (845,000 )   3M Libor   2.66 %   10.0 Receiver   ≥ 6 Months   (8,400 )   (12,877 )   8.60   (792,000 )   3M Libor   2.64 %   10.0 Total Receiver       $ (13,255 )   $ (21,878 )   7.52   $ (1,637,000 )   3M Libor   2.65 %   10.0
Schedule of Interest Rate Caps	As of December 31, 2018, the Company held the following interest rate caps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate, net of a fixed cap rate: (notional in thousands)             December 31, 2018 Caps Maturities   Notional Amount   Weighted Average Cap Rate   Weighted Average Receive Rate   Weighted Average Maturity (Years) 2019   $ 800,000   1.344 %   2.422 %   0.53 2020   1,700,000   1.250 %   2.766 %   1.29 Total   $ 2,500,000   1.280 %   2.656 %   1.04
Schedule of Total Return Swaps	The Company had the following total return swap agreements in place at June 30, 2019 and December 31, 2018: (notional and dollars in thousands)           June 30, 2019 Maturity Date   Current Notional Amount   Fair Value   Cost Basis   Unrealized Gain (Loss) January 12, 2043   $ (20,213 )   $ (17 )   $ (30 )   $ 13 January 12, 2044   (25,323 )   (68 )   (29 )   (39 ) Total   $ (45,536 )   $ (85 )   $ (59 )   $ (26 ) (notional and dollars in thousands)           December 31, 2018 Maturity Date   Current Notional Amount   Fair Value   Cost Basis   Unrealized Gain (Loss) January 12, 2043   $ (21,395 )   $ (153 )   $ (30 )   $ (123 ) January 12, 2044   (26,870 )   (230 )   (29 )   (201 ) Total   $ (48,265 )   $ (383 )   $ (59 )   $ (324 )