Duration of a floating rate note

CFA Level II Derivatives
#1

Hi to everybody,

I read in the curriculum: “Given that the duration of a fixed rate bond is greater than the duration of a floating rate note, the duration of a payer swap is negative.”

Is it ALWAYS the case? Doesn’t it depend on the direction variable interest rates go?

Thanks and have a nice day.

#2

Interest rates “reset” for the floating leg at each payment date, so the duration there is always the period to that date. Fixed leg will always be higher (as it spans over many payment periods), except for the last payment, when they will be equal.

#3

I understand now. Thank you very much Nenorr.

#4

Note that they’re talking specifically about effective duration. Not modified duration, not Macaulay duration.

#5

Thanks S2000magician for this precision.