We use a variety of strategies to hedge a portion of our exposure to market risks, primarily interest rate risk and associated risks, including prepayment risk and extension risk. Our risk management strategy takes into consideration our risk / return profile for the current environment and incorporates our investment strategy, the cost of hedging transactions, and our intention to continue to qualify as a REIT. Our hedging strategies are generally not designed to protect our net asset value from spread risk.

The principal instruments that we use to hedge a portion of our exposure to interest rate, prepayment, and extension risks are interest rate swaps and interest rate swaptions. We also utilize TBA contracts, U.S. Treasury securities, and U.S. Treasury futures contracts, primarily through short sales.

As of September 30, 2018, our interest rate hedge portfolio totaled $71.7 billion and covered 95% of our repo funding, other debt and net TBA position.
HEDGE PORTFOLIO SUMMARY
As of September 30, 2018
($ in MM,
except per share amounts)		 Notional /
Market Value
9/30/2018		 Duration
9/30/2018 star-img		 Net Hedge
Gains / Losses
Q3 2018 star-img		 Net Hedge
Gains / Losses
Per Share
Q3 2018
Interest Rate Swaps $48,675 (4.0) $227 $0.49
Payer Swaptions 5,600 (5.2) 30 0.07
U.S. Treasuries, Net Short 17,400 (6.3) 172 0.37
Total / Q3 2018 star-img $71,675 (4.1) $429 $0.93
Duration is a measurement of market price sensitivity to interest rate movements and represents the estimated percentage change in the market value of our mortgage assets and our hedge portfolio caused by a parallel change in short- and long-term interest rates. The duration of our investment portfolio tends to increase when interest rates rise and decrease when interest rates fall. As of September 30, 2018, we had a net duration gap of 0.9 years.
DURATION GAP SENSITIVITY star-img
As of September 30, 2018
Rates
-100 bps		 Duration
9/30/2018		 Rates
+100 bps
Mortgage Assets: star-img
  30 Year MBS 3.6 5.4 6.5
  15 Year MBS 3.1 3.7 4.0
Total Mortgage Assets 3.5 5.1 6.0
Liabilities and Hedges (4.0) (4.2) (4.2)
Net Duration Gap (0.5) 0.9 1.8
Changes in interest rates and changes in MBS spreads can impact the market value of our equity. The charts below outline the impact of interest rate and mortgage basis movements on our NAV.
Interest Rate Sensitivity star-img
As of September 30, 2018
(based on instantaneous parallel shifts in interest rates)
Interest Rate Shock (bps) Estimated Change in
Portfolio Market Value
star-img		 Estimated Change as a %
of Tangible Equity star-img
-100 0.3% 3.0%
-50 0.3% 3.2%
+50 (0.6)% (5.7)%
+100 (1.4)% (13.2)%
mbs spread sensitivity ("basis risk") star-img
As of September 30, 2018
MBS Spread Shock (bps) Estimated Change in
Portfolio Market Value star-img 		Estimated Change as a %
of Tangible Equity star-img
-25 1.5% 14.0%
-10 0.6% 5.6%
+10 (0.6)% (5.6)%
+25 (1.5)% (14.0)%