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DERIVATIVE INSTRUMENTS (Tables) | 3 Months Ended
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Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Summarizes Fair Value Information about Derivative Assets Liabilities | The table below summarizes fair value information about our derivative assets and liabilities at March 31, 2021 and December 31, 2020:
Derivatives Instruments |  |  | March 31, 2021 |  | December 31, 2020
Assets |  |  | (dollars in thousands)
Interest rate swaptions |  |  | $ | 372,701 |  |  | $ | 74,470 |
TBA derivatives |  |  | 17,404 |  |  | 96,109 |
Futures contracts |  |  | 498,226 |  |  | 506 |
Purchase commitments |  |  | 1,170 |  |  | 49 |
Credit derivatives (1) |  |  | 1,973 |  |  | — |
Total derivative assets |  |  | $ | 891,474 |  |  | $ | 171,134 |
Liabilities |  |  |  |  |
Interest rate swaps |  |  | $ | 672,637 |  |  | $ | 1,006,492 |
TBA derivatives |  |  | 263,523 |  |  | — |
Futures contracts |  |  | — |  |  | 19,413 |
Purchase commitments |  |  | 3,028 |  |  | — |
Credit derivatives (1) |  |  | 434 |  |  | 7,440 |
Total derivative liabilities |  |  | $ | 939,622 |  |  | $ | 1,033,345 |
(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $499.0 million and $504.0 million at March 31, 2021 and December 31, 2020, respectively, plus any coupon shortfalls on the underlying tranche. As of March 31, 2021 and December 31, 2020 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and A.
Summary of Certain Characteristics of Derivatives | The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2021 and December 31, 2020:
March 31, 2021
Maturity | Current Notional (1)(2) |  | Weighted Average Pay Rate |  | Weighted Average Receive Rate |  | Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years | $ | 31,167,000 |  |  | 0.24 | % |  | 0.06 | % |  | 1.80
3 - 6 years | 3,100,000 |  |  | 0.13 | % |  | 0.06 | % |  | 4.13
6 - 10 years | 4,065,500 |  |  | 1.27 | % |  | 0.65 | % |  | 7.77
Greater than 10 years | 1,484,000 |  |  | 3.06 | % |  | 0.33 | % |  | 20.27
Total / Weighted average | $ | 39,816,500 |  |  | 0.80 | % |  | 0.34 | % |  | 3.28
December 31, 2020
Maturity | Current Notional (1)(2) |  | Weighted Average Pay Rate |  | Weighted Average Receive Rate |  | Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years | $ | 23,680,150 |  |  | 0.27 | % |  | 0.11 | % |  | 1.96
3 - 6 years | 3,600,000 |  |  | 0.18 | % |  | 0.09 | % |  | 4.21
6 - 10 years | 5,565,500 |  |  | 1.40 | % |  | 0.62 | % |  | 7.76
Greater than 10 years | 1,484,000 |  |  | 3.06 | % |  | 0.36 | % |  | 20.52
Total / Weighted average | $ | 34,329,650 |  |  | 0.92 | % |  | 0.37 | % |  | 3.94
(1) As of March 31, 2021, 8%, 62% and 30% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. As of December 31, 2020, 17%, 72% and 11% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (2) There were no forward starting swaps at March 31, 2021 and December 31, 2020. (3) At March 31, 2021 and December 31, 2020, the weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed. The following table presents swaptions outstanding at March 31, 2021 and December 31, 2020.
March 31, 2021
|  | Current Underlying Notional |  | Weighted Average Underlying Fixed Rate |  | Weighted Average Underlying Floating Rate |  | Weighted Average Underlying Years to Maturity |  | Weighted Average Months to Expiration
(dollars in thousands)
Long pay |  | $6,050,000 |  | 1.27% |  | 3M LIBOR |  | 10.27 |  | 4.04
Long receive |  | $1,000,000 |  | 1.45% |  | 3M LIBOR |  | 10.95 |  | 11.43
December 31, 2020
|  | Current Underlying Notional |  | Weighted Average Underlying Fixed Rate |  | Weighted Average Underlying Floating Rate |  | Weighted Average Underlying Years to Maturity |  | Weighted Average Months to Expiration
(dollars in thousands)
Long pay |  | $8,050,000 |  | 1.27% |  | 3M LIBOR |  | 10.40 |  | 5.42
Long receive |  | $250,000 |  | 1.66% |  | 3M LIBOR |  | 10.02 |  | 0.13
The following table summarizes certain characteristics of the Company’s TBA derivatives at March 31, 2021 and December 31, 2020:
March 31, 2021
Purchase and sale contracts for derivative TBAs | Notional |  | Implied Cost Basis |  | Implied Market Value |  | Net Carrying Value
(dollars in thousands)
Purchase contracts | $ | 22,496,000 |  |  | $ | 23,040,011 |  |  | $ | 22,793,892 |  |  | $ | (246,119) |
December 31, 2020
Purchase and sale contracts for derivative TBAs | Notional |  | Implied Cost Basis |  | Implied Market Value |  | Net Carrying Value
(dollars in thousands)
Purchase contracts | $ | 19,635,000 |  |  | $ | 20,277,088 |  |  | $ | 20,373,197 |  |  | $ | 96,109 |
The following table summarizes certain characteristics of the Company’s futures derivatives at March 31, 2021 and December 31, 2020:
March 31, 2021
| Notional - Long Positions |  | Notional - Short Positions |  | Weighted Average Years to Maturity
| (dollars in thousands) |  |  |  |
U.S. Treasury futures - 5 year | — |  |  | (3,425,000) |  |  | 4.42
U.S. Treasury futures - 10 year and greater | $ | — |  |  | $ | (15,213,500) |  |  | 7.48
Total | $ | — |  |  | $ | (18,638,500) |  |  | 6.92
December 31, 2020
| Notional - Long Positions |  | Notional - Short Positions |  | Weighted Average Years to Maturity
| (dollars in thousands) |  |  |  |
U.S. Treasury futures - 5 year | — |  |  | (1,240,000) |  |  | 4.40
U.S. Treasury futures - 10 year and greater | — |  |  | (9,183,800) |  |  | 6.90
Total | $ | — |  |  | $ | (10,423,800) |  |  | 6.60
Offsetting of Derivative Assets and Liabilities | The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset on our Consolidated Statements of Financial Condition at March 31, 2021 and December 31, 2020, respectively.
March 31, 2021
|  |  | Amounts Eligible for Offset |  |
| Gross Amounts |  | Financial Instruments |  | Cash Collateral |  | Net Amounts
Assets | (dollars in thousands)
Interest rate swaptions, at fair value | $ | 372,701 |  |  | $ | — |  |  | $ | — |  |  | $ | 372,701 |
TBA derivatives, at fair value | 17,404 |  |  | (17,404) |  |  | — |  |  | — |
Futures contracts, at fair value | 498,226 |  |  | — |  |  | — |  |  | 498,226 |
Purchase commitments | 1,170 |  |  | — |  |  | — |  |  | 1,170 |
Credit derivatives | 1,973 |  |  | (366) |  |  | — |  |  | 1,607 |
Liabilities |
Interest rate swaps, at fair value | $ | 672,637 |  |  | $ | — |  |  | $ | (78,967) |  |  | $ | 593,670 |
TBA derivatives, at fair value | 263,523 |  |  | (17,404) |  |  | — |  |  | 246,119 |
Purchase commitments | 3,028 |  |  | — |  |  | — |  |  | 3,028 |
Credit derivatives | 434 |  |  | (366) |  |  | (68) |  |  | — |
December 31, 2020
|  |  | Amounts Eligible for Offset |  |
| Gross Amounts |  | Financial Instruments |  | Cash Collateral |  | Net Amounts
Assets | (dollars in thousands)
Interest rate swaptions, at fair value | $ | 74,470 |  |  | $ | — |  |  | $ | — |  |  | $ | 74,470 |
TBA derivatives, at fair value | 96,109 |  |  | — |  |  | — |  |  | 96,109 |
Futures contracts, at fair value | 506 |  |  | (506) |  |  | — |  |  | — |
Purchase commitments | 49 |  |  | — |  |  | — |  |  | 49 |
Liabilities |
Interest rate swaps, at fair value | $ | 1,006,492 |  |  | $ | — |  |  | $ | (108,757) |  |  | $ | 897,735 |
Futures contracts, at fair value | 19,413 |  |  | (506) |  |  | (18,907) |  |  | — |
Credit derivatives | 7,440 |  |  | — |  |  | (7,440) |  |  | — |
Schedule of Derivative Instruments in Statement of Operations and Comprehensive Income Loss | The effect of interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss) is as follows:
Location on Consolidated Statements of Comprehensive Income (Loss)
| Net Interest Component of Interest Rate Swaps |  | Realized Gains (Losses) on Termination of Interest Rate Swaps |  | Unrealized Gains (Losses) on Interest Rate Swaps
For the three months ended | (dollars in thousands)
March 31, 2021 | $ | (79,747) |  |  | $ | — |  |  | $ | 772,262 |
March 31, 2020 | $ | (13,980) |  |  | $ | (397,561) |  |  | $ | (2,827,723) |
The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:
Three Months Ended March 31, 2021
Derivative Instruments | Realized Gain (Loss) |  | Unrealized Gain (Loss) |  | Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives and Financial Instruments
(dollars in thousands)
Net TBA derivatives | $ | (287,889) |  |  | $ | (342,228) |  |  | $ | (630,117) |
Net interest rate swaptions | (22,210) |  |  | 305,990 |  |  | 283,780 |
Futures | 296,164 |  |  | 517,133 |  |  | 813,297 |
Purchase commitments | — |  |  | (1,907) |  |  | (1,907) |
Credit derivatives | 1,631 |  |  | 9,023 |  |  | 10,654 |
Total |  |  |  |  | $ | 475,707 |
Three Months Ended March 31, 2020
Derivative Instruments | Realized Gain (Loss) |  | Unrealized Gain (Loss) |  | Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives and Financial Instruments
(dollars in thousands)
Net TBA derivatives | $ | 271,085 |  |  | $ | 160,695 |  |  | $ | 431,780 |
Net interest rate swaptions | 51,445 |  |  | 70,133 |  |  | 121,578 |
Futures | (279,476) |  |  | 6,892 |  |  | (272,584) |
Purchase commitments | — |  |  | (10,809) |  |  | (10,809) |
Credit derivatives | 1,925 |  |  | (65,464) |  |  | (63,539) |
Total |  |  |  |  | $ | 206,426 |

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