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Negative Duration

Hello, can someone help with the below?

Negative duration means that the party paying fixed in a swap will benefit from rising interest rates and falling market value.

Any explanation to this?

Thanks. 

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You have an agreement paying fixed. AND recieving floating. Floating increase, and you gain on the increase. Cost is fixed, income increase.

bin_english wrote:
Hello, can someone help with the below?

Negative duration means that the party paying fixed in a swap will benefit from rising interest rates and falling market value.

Any explanation to this?

Thanks.

Most bonds have positive duration: when interest rates increase, the value of the bond decreases.

If you have a pay fixed, receive floating plain vanilla interest rate swap, when interest rates increase the value of your swap increases, just the opposite of a normal bond.  Hence, your duration is the opposite of a normal bond’s duration: it’s negative.

Simplify the complicated side; don't complify the simplicated side.

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Got it!! Thanks so much!! 

Usually the duration of a floating rate bond is 1 or less - as the coupon readjusts every year (or if semi-annual, twice a year). The duration of the fixed rate bond is usually higher than 1 (unless you’re in the final year of the bond) - it is the money weighed time to maturity of the bond. So in a pay fixed, receive floating swap, you’re (equivalently) long a bond with duration 1 or less, and short a bond with duration higher than one, hence overall you have negative duration.