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DERIVATIVE INSTRUMENTS (Tables) | 9 Months Ended
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Sep. 30, 2022
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 September 30, 2022 and December 31, 2021:
Derivatives Instruments |  |  | September 30, 2022 |  | December 31, 2021
Assets |  |  | (dollars in thousands)
Interest rate swaps |  |  | $ | 36,861 |  |  | $ | — |
Interest rate swaptions |  |  | 344,301 |  |  | 105,710 |
TBA derivatives |  |  | 28,033 |  |  | 52,693 |
Futures contracts |  |  | 1,539,298 |  |  | 9,028 |
Purchase commitments |  |  | 1,037 |  |  | 1,779 |
Credit derivatives (1) |  |  | — |  |  | 1,160 |
Total derivative assets |  |  | $ | 1,949,530 |  |  | $ | 170,370 |
Liabilities |  |  |  |  |
Interest rate swaps |  |  | $ | 108,071 |  |  | $ | 747,036 |
TBA derivatives |  |  | 635,652 |  |  | 3,916 |
Futures contracts |  |  | 2,946 |  |  | 129,134 |
Purchase commitments |  |  | 2,485 |  |  | 870 |
Credit derivatives (1) |  |  | 15,381 |  |  | 581 |
Total derivative liabilities |  |  | $ | 764,535 |  |  | $ | 881,537 |
(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $420.0 million and $400.0 million at September 30, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche. As of September 30, 2022 and December 31, 2021 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.
Summary of Certain Characteristics of Derivatives | The following table summarizes certain characteristics of the Company’s interest rate swaps at September 30, 2022 and December 31, 2021:
September 30, 2022
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 | $ | 21,501,900 |  |  | 1.08 | % |  | 2.95 | % |  | 0.66
3 - 6 years | 1,120,400 |  |  | 2.20 | % |  | 2.95 | % |  | 4.32
6 - 10 years | 15,936,200 |  |  | 2.06 | % |  | 2.99 | % |  | 9.29
Greater than 10 years | 2,309,000 |  |  | 3.49 | % |  | 2.89 | % |  | 23.18
Total / Weighted average | $ | 40,867,500 |  |  | 1.53 | % |  | 2.96 | % |  | 5.40
December 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 | $ | 32,709,300 |  |  | 0.25 | % |  | 0.06 | % |  | 1.10
3 - 6 years | 2,780,000 |  |  | 0.21 | % |  | 0.07 | % |  | 3.46
6 - 10 years | 9,118,000 |  |  | 1.43 | % |  | 0.13 | % |  | 9.05
Greater than 10 years | 1,300,000 |  |  | 4.04 | % |  | 0.11 | % |  | 18.70
Total / Weighted average | $ | 45,907,300 |  |  | 0.59 | % |  | 0.08 | % |  | 3.32
(1) As of September 30, 2022, 22%, 30% and 48% 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, 2021, 18%, 53% and 29% 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 September 30, 2022 and December 31, 2021. (3) At September 30, 2022 and December 31, 2021, 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 summarizes certain characteristics of the Company’s swaptions at September 30, 2022 and December 31, 2021:
September 30, 2022
|  | 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 |  | $3,000,000 |  | 2.03% |  | 3M LIBOR |  | 8.71 |  | 14.56
Long receive |  | $750,000 |  | 1.57% |  | 3M LIBOR |  | 11.32 |  | 15.89
December 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 |  | $4,050,000 |  | 2.00% |  | 3M LIBOR |  | 9.65 |  | 19.50
Long receive |  | $2,000,000 |  | 1.47% |  | 3M LIBOR |  | 10.95 |  | 11.38
The following table summarizes certain characteristics of the Company’s TBA derivatives at September 30, 2022 and December 31, 2021:
September 30, 2022
Purchase and sale contracts for derivative TBAs | Notional |  | Implied Cost Basis |  | Implied Market Value |  | Net Carrying Value
(dollars in thousands)
Purchase contracts | $ | 18,064,000 |  |  | $ | 17,686,372 |  |  | $ | 17,060,584 |  |  | $ | (625,788) |
Sale contracts | (1,980,000) |  |  | (1,895,947) |  |  | (1,877,778) |  |  | 18,169 |
Net TBA derivatives | $ | 16,084,000 |  |  | $ | 15,790,425 |  |  | $ | 15,182,806 |  |  | $ | (607,619) |
December 31, 2021
Purchase and sale contracts for derivative TBAs | Notional |  | Implied Cost Basis |  | Implied Market Value |  | Net Carrying Value
(dollars in thousands)
Purchase contracts | $ | 20,133,000 |  |  | $ | 20,289,856 |  |  | $ | 20,338,633 |  |  | $ | 48,777 |
The following table summarizes certain characteristics of the Company’s futures derivatives at September 30, 2022 and December 31, 2021:
September 30, 2022
| Notional - Long Positions |  | Notional - Short Positions |  | Weighted Average Years to Maturity
| (dollars in thousands) |  |  |  |
U.S. Treasury futures - 2 year | $ | — |  |  | $ | (17,391,000) |  |  | 1.97
U.S. Treasury futures - 5 year | — |  |  | (6,503,400) |  |  | 4.38
U.S. Treasury futures - 10 year and greater | — |  |  | (18,376,900) |  |  | 7.40
Total | $ | — |  |  | $ | (42,271,300) |  |  | 4.70
December 31, 2021
| Notional - Long Positions |  | Notional - Short Positions |  | Weighted Average Years to Maturity
| (dollars in thousands) |  |  |  |
U.S. Treasury futures - 2 year | $ | — |  |  | $ | (7,509,200) |  |  | 1.96
U.S. Treasury futures - 5 year | — |  |  | (5,644,900) |  |  | 4.38
U.S. Treasury futures - 10 year and greater | — |  |  | (9,381,000) |  |  | 6.84
Total | $ | — |  |  | $ | (22,535,100) |  |  | 4.60
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 in our Consolidated Statements of Financial Condition at September 30, 2022 and December 31, 2021, respectively.
September 30, 2022
|  |  | Amounts Eligible for Offset |  |
| Gross Amounts |  | Financial Instruments |  | Cash Collateral |  | Net Amounts
Assets | (dollars in thousands)
Interest rate swaps, at fair value | $ | 36,861 |  |  | $ | (26,666) |  |  | $ | — |  |  | $ | 10,195 |
Interest rate swaptions, at fair value | 344,301 |  |  | — |  |  | — |  |  | 344,301 |
TBA derivatives, at fair value | 28,033 |  |  | (9,864) |  |  | — |  |  | 18,169 |
Futures contracts, at fair value | 1,539,298 |  |  | (2,946) |  |  | — |  |  | 1,536,352 |
Purchase commitments | 1,037 |  |  | — |  |  | — |  |  | 1,037 |
Liabilities |
Interest rate swaps, at fair value | $ | 108,071 |  |  | $ | (26,666) |  |  | $ | — |  |  | $ | 81,405 |
TBA derivatives, at fair value | 635,652 |  |  | (9,864) |  |  | — |  |  | 625,788 |
Futures contracts, at fair value | 2,946 |  |  | (2,946) |  |  | — |  |  | — |
Purchase commitments | 2,485 |  |  | — |  |  | — |  |  | 2,485 |
Credit derivatives | 15,381 |  |  | — |  |  | (10,373) |  |  | 5,008 |
December 31, 2021
|  |  | Amounts Eligible for Offset |  |
| Gross Amounts |  | Financial Instruments |  | Cash Collateral |  | Net Amounts
Assets | (dollars in thousands)
Interest rate swaptions, at fair value | $ | 105,710 |  |  | $ | — |  |  | $ | — |  |  | $ | 105,710 |
TBA derivatives, at fair value | 52,693 |  |  | (3,876) |  |  | — |  |  | 48,817 |
Futures contracts, at fair value | 9,028 |  |  | (9,028) |  |  | — |  |  | — |
Purchase commitments | 1,779 |  |  | — |  |  | — |  |  | 1,779 |
Credit derivatives | 1,160 |  |  | (516) |  |  | — |  |  | 644 |
Liabilities |
Interest rate swaps, at fair value | $ | 747,036 |  |  | $ | — |  |  | $ | (77,607) |  |  | $ | 669,429 |
TBA derivatives, at fair value | 3,916 |  |  | (3,876) |  |  | (40) |  |  | — |
Futures contracts, at fair value | 129,134 |  |  | (9,028) |  |  | (120,106) |  |  | — |
Purchase commitments | 870 |  |  | — |  |  | — |  |  | 870 |
Credit derivatives | 581 |  |  | (516) |  |  | (65) |  |  | — |
Schedule of Derivative Instruments in Statement of Operations and Comprehensive Income Loss | The effect of interest rate swaps in 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 (1) |  | Realized Gains (Losses) on Termination of Interest Rate Swaps (1) |  | Unrealized Gains (Losses) on Interest Rate Swaps (1)
For the three months ended | (dollars in thousands)
September 30, 2022 | $ | 141,110 |  |  | $ | (83,393) |  |  | $ | 1,251,350 |
September 30, 2021 | $ | (54,411) |  |  | $ | (1,196,417) |  |  | $ | 1,380,946 |
For the nine months ended |
September 30, 2022 | $ | 79,561 |  |  | $ | (83,409) |  |  | $ | 3,472,326 |
September 30, 2021 | $ | (217,245) |  |  | $ | (1,196,417) |  |  | $ | 2,012,141 |
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).
The effect of other derivative contracts in the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:
Three Months Ended September 30, 2022
Derivative Instruments | Realized Gain (Loss) |  | Unrealized Gain (Loss) |  | Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives | $ | (430,528) |  |  | $ | (577,156) |  |  | $ | (1,007,684) |
Net interest rate swaptions | (18,949) |  |  | 30,610 |  |  | 11,661 |
Futures | 611,661 |  |  | 1,197,942 |  |  | 1,809,603 |
Purchase commitments | — |  |  | (4,530) |  |  | (4,530) |
Credit derivatives | 1,105 |  |  | (1,982) |  |  | (877) |
Total |  |  |  |  | $ | 808,173 |
Three Months Ended September 30, 2021
Derivative Instruments | Realized Gain (Loss) |  | Unrealized Gain (Loss) |  | Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives | $ | 155,569 |  |  | $ | (182,845) |  |  | $ | (27,276) |
Net interest rate swaptions | (24,265) |  |  | (44,602) |  |  | (68,867) |
Futures | (229,534) |  |  | 279,293 |  |  | 49,759 |
Purchase commitments | — |  |  | 920 |  |  | 920 |
Credit derivatives | 2,616 |  |  | (2,320) |  |  | 296 |
Total |  |  |  |  | $ | (45,168) |
Nine Months Ended September 30, 2022
Derivative Instruments | Realized Gain (Loss) |  | Unrealized Gain (Loss) |  | Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives | $ | (2,250,909) |  |  | $ | (656,394) |  |  | $ | (2,907,303) |
Net interest rate swaptions | (33,399) |  |  | 272,668 |  |  | 239,269 |
Futures | 2,332,338 |  |  | 1,656,458 |  |  | 3,988,796 |
Purchase commitments | — |  |  | (2,358) |  |  | (2,358) |
Credit derivatives | 2,539 |  |  | (14,510) |  |  | (11,971) |
Total |  |  |  |  | $ | 1,306,433 |
Nine Months Ended September 30, 2021
Derivative Instruments | Realized Gain (Loss) |  | Unrealized Gain (Loss) |  | Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives | $ | (122,275) |  |  | $ | (249,847) |  |  | $ | (372,122) |
Net interest rate swaptions | (69,262) |  |  | 28,528 |  |  | (40,734) |
Futures | 250,013 |  |  | 218,527 |  |  | 468,540 |
Purchase commitments | — |  |  | 1,389 |  |  | 1,389 |
Credit derivatives | 7,024 |  |  | 8,634 |  |  | 15,658 |
Total |  |  |  |  | $ | 72,731 |

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