2014 Mock - Swap Duration vs Sensitivity of Interest Rate

The company has a variable rate loan and has used an interest rate swap to converted it into a fix rate loan.

This swap increases the sensitivity of the company’s overall position to changes in interest rates.

Can anyone explain why? My understanding is that the swap is pay fix, receive variable so the fix leg is negative and should reduce the duration?

Variablre loan, duration is close to zero => Less interest rate risk

Now convert to fixed rate loan => duration higher => interest rate risk higher

It’s easier to help knowing the name of the case.

Agree with Frank. As a rule of thump. The duration of the fixed rate is 75% of its maturity. The floating rate is 50% of its periodic maturity. Hint. Always look at what is the liability structure. if it float then you must receive Float. If it fixed you should receive fixed.

Is it because making a loan is the exact opposite of holding a bond, so the duration of the swap (pay fix, receive variable) is positive in this case?

Negative or positive duration is still sensitive to changes in interest rates. Look at the absolute value of the duration as a means to measure “sensitivity”.

I always start with a rule of thump.

Should that prove ineffective, I escalate to a rule of wallop.

Like at absolute value.

yea i juss got that at the mocks. i thought lower number means less sensisitve. but its absolute. so for exmaple

duration of -10 is more sensitive than 5 or -5.