Anyone can help to explain why in the steepening yield curve we should pay float - receive fix? I thought steepening means the LT bond has increase its yield, for example if we enter into 10 yrs swap, the fix rate pay 5% (we received 5% and pay float - LIBOR), which LIBOR will increase because the LT bond increase, so why should we receive fix?
Ok so to chime in on what Magician said, lets assume two senarios of steepening curves.
Scenario 1 - short rates fall, long rates unchanged
Here you’re better off paying floating on the short term and receiving fixed on the long term as floating payments will be lower due to falling short term rates.
Scenario 2 - short rates unchanged, long rates rise
Here you wanna pay fixed on short and receive floating on long rates as you’ll receive higher rates with rising long term yields.