Entering into receive fixed, pay float swap - decrease duration?


Looking at 2015 Schweser Vol 2 Exam 1 Afternoon Q 44.

Basically the company has fixed loan and expects the rate to go down so enters a receive fixed, pay float swap. The answer is saying that by entering this swap, the absolute duration of the liabilities will decrease. Can someone please explain?

Receive fixed/pay float swaps have positive duration and I assume that it was something to do with duration of assets vs. duration of liabilities but I can’t see why entering into this swap would reduce duration.


when you pay floating, you adjust the coupon rate, not the principal amount when there is a rate change. therefore the duration is low because there is no price (or limited price change) for a corresponding rate change.

at least this is how i rationalize it.