Hi all, Have a question on Fair Value Hedge Accounting and appreciate your thoughts on this. Situation: Issue a floating-rate 10-year bond. Assume enter into an IRS taking receive-fixed position to hedge 50% of interest rate exposure. I understand that fair value hedge accounting offsets the MTM of an asset/liability against the P&L movement of the derivative. Also, a hedge is effective if it meets the “80%–125% rule”. My question is, how could fair value hedge be demonstrated if the derivative position is increasingly losing… since you are moving down the swap curve over the years? i.e. start off comparing IRS’ fixed rate to 9 year swap rate, following year 8 year swap rate, etc… The gap between the fixed rate and the market swap rate will increase over the life of the bond. Hope this makes sense, sorry I am not an accountant so I might not be using the correct terminology.