Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments and Hedging Activities (Tables)

v3.23.1
Derivative Instruments and Hedging Activities (Tables)
 3 Months Ended
Mar. 31, 2023
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, 2023 and December 31, 2022:
March 31, 2023
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 15,850  $ 188,085  $ —  $ — 
Interest rate swap agreements
 —  —  —  8,404,872 
Swaptions, net 54  (200,000) —  — 
TBAs 50,109  3,449,000  (1,693) 269,000 
Futures, net —  —  —  (6,945,550)
Total $ 66,013  $ 3,437,085  $ (1,693) $ 1,728,322 
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 
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,
2023 2022
Interest rate risk management:
TBAs
Loss on other derivative instruments
 $ (17,164) $ (198,836)
Futures
Loss on other derivative instruments
 (140,087) 106,095 
Options on futures
Loss on other derivative instruments
 —  (2,066)
Interest rate swaps - Payers
Loss on interest rate swap and swaption agreements
 (71,760) 437,160 
Interest rate swaps - Receivers
Loss on interest rate swap and swaption agreements
 (10,368) (477,139)
Swaptions
Loss on interest rate swap and swaption agreements
 (26) 1,938 
Non-risk management:
Inverse interest-only securities
Loss on other derivative instruments
 1,480  (6,955)
Total $ (237,925) $ (139,803)
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, 2023 and 2022:
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)
Three Months Ended March 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  $ —  $ (14,883) $ 232,218  $ 240,044  $ (1,765)
Interest rate swap agreements 20,387,300  10,791,805  (6,879,458) 24,299,647  24,538,895  (56,264)
Swaptions, net (1,761,000) (1,000,000) —  (2,761,000) (2,244,333) — 
TBAs, net 4,116,000  20,518,000  (20,012,000) 4,622,000  3,611,400  (190,765)
Futures, net
 (5,829,600) (4,866,100) 3,179,050  (7,516,650) (9,786,491) (2,113)
Options on futures, net
 —  2,000  —  2,000  622  — 
Total $ 17,159,801  $ 25,445,705  $ (23,727,291) $ 18,878,215  $ 16,360,137  $ (250,907)
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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, 2023 and December 31, 2022:
March 31, 2023
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 3,802,000  $ 3,726,650  $ 3,775,210  $ 50,109  $ (1,549)
Sale contracts (84,000) (82,110) (82,254) —  (144)
TBAs, net $ 3,718,000  $ 3,644,540  $ 3,692,956  $ 50,109  $ (1,693)
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)
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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, 2023 and December 31, 2022:
(dollars in thousands) March 31, 2023 December 31, 2022
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 $ (1,530,200) $ —  97 $ (562,200) $ —  95
U.S. Treasury futures - 5 year (2,021,400) —  97 (3,855,500) —  95
U.S. Treasury futures - 10 year (1,005,200) —  91 (2,397,200) —  90
U.S. Treasury futures - 20 year 182,500  —  91 101,000  —  90
Federal Funds futures - 30 day —  —  0 (7,948,552) —  92
Eurodollar futures - 3 month:
≤ 1 year (2,238,250) —  185 (2,957,000) —  184
> 1 and ≤ 2 years (333,000) —  444 (666,000) —  489
Total futures $ (6,945,550) $ —  139 $ (18,285,452) $ —  122
Schedule of Interest Rate Swap Payers As of March 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, 2023
Swaps Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Maturity (Years)
2024 $ —  —  % —  % 0.00
2025 —  —  % —  % 0.00
2026 2,647,671  4.730  % 4.870  % 1.96
2027 —  —  % —  % 0.00
2028 and Thereafter 2,662,801  3.510  % 4.870  % 6.53
Total $ 5,310,472  4.118  % 4.870  % 4.25
Schedule of Interest Rate Swap Receivers
Additionally, as of March 31, 2023, 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)
March 31, 2023
Swaps Maturities
Notional Amount (1)
Weighted Average Pay Rate (2)
Weighted Average Fixed Receive Rate (2)
Weighted Average Maturity (Years) (2)
2024 $ —  —  % —  % 0.00
2025 —  —  % —  % 0.00
2026 1,831,339  4.870  % 3.805  % 1.97
2027 —  —  % —  % 0.00
2028 and Thereafter 1,263,061  4.870  % 3.313  % 6.14
Total $ 3,094,400  4.870  % 3.692  % 8.11
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(1)Notional amount includes $260.0 million in forward starting interest rate swaps as of March 31, 2023.
(2)Weighted averages exclude forward starting interest rate swaps. As of March 31, 2023, the weighted average fixed receive rate on forward starting interest rate swaps was 3.3%.
Schedule of Interest Rate Swaptions As of March 31, 2023, the Company had the following outstanding interest rate swaptions:
March 31, 2023
(notional and dollars in thousands) Option Underlying Swap
Swaption Expiration Cost Basis Fair Value Average Months to Expiration Notional Amount
Average Fixed Rate (1)
Average Term (Years)
Purchase contracts:
Payer < 6 Months $ 660  $ 133  5.20  $ 200,000  5.19  % 1.0
Sale contracts:
Payer < 6 Months $ (580) $ (79) 5.20  $ (400,000) 5.72  % 1.0
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(1)As of March 31, 2023, 100.0% of the underlying swap floating rates were tied to SOFR.