Duration & Swaps

Is “receive floating” ALWAYS a negative-duration position? Or does this depend on your circumstance (i.e., I am long $500 million in fixed rate bonds vs. some other initial position) If so, does that mean that “receive fixed” is ALWAYS a positive-duration position?

Receive floating is always negative. Receive fixed is always positive.

and logic says Paying is the opposite… duh. Ok thanks for the sanity check.

good way to remember this is that the duration on a float is ALWAYS really close to 0. So it is the fixed side that determines whether your duration increases or decreases.

how you doing deep? Ready to rock this exam?

Are the relative exchange rates between two currencies implicit in the interest rates provided in a currency swap?? They’d have to be right? Otherwise there’s an opportunity for arbitrage?

how can “receive” be negative? i thought it goes something like: pay fixed/receive floating - > overall duration contribution will be negative (adding this will decrease your portfolio’s duration) receive fixed pay floating -> overall duration contribution will be positive (adding this will increase your portfolio duration)

You got it all right… it depends on what you receive… if you receive fixed, then you increase your overall duration… however, if you receive floating, you decrease your overall duration (which is exactly what you stated)…

Guys it’s not true that receive fixed is always positive and receive floating is always negative. Although in general, what you wrote (i.e. receive fixed in GENERALLY positive and receive floating is GENERALLY negative) is generally true, it is not always true, so you must look out for the duration they give you in the question, then calculate the net pay/receive duration.

lenchik101 Wrote: ------------------------------------------------------- > pay fixed/receive floating - > overall duration > contribution will be negative (adding this will > decrease your portfolio’s duration) > > receive fixed pay floating -> overall duration > contribution will be positive (adding this will > increase your portfolio duration) +1