can someone clarify this for me? when happens these short positions when interest rates go up? 1. short fixed rate bond 2. short floating rate bond in #2, when interest rates go up, the bond price drops, but since we’re negatively exposed, we profit by the duration of the bond?
- rates go up, value of the fixed bond goes down, so a short fixed bond position makes $. 2. duration of a floater is only approximately equal to the next reset date, but if you are short a floater and rates are going up, your payment to the long is going up as well.
ok so the short floater value is not materially affected, just the exposure of the floating rate
There will be a duration effect even on the floater, but it won’t be as large as it is for the fixed.