For swaps, one should receive fixed/pay floating in the steeper market (BONDS) and pay fixed/receive floating in the flatter market (Treasuries)… WHY? HOW? pls explain
My Understanding (is it correct?) – In a swap, effectively we r exchanging the returns of the two underlyings. so in a steeper bond market.. as time passes.. inst rates increases.. bond price decrease.. so the overall return on the investment in bond is low. So that is why.. in the swap.. I would want to get PAID FIXED AMT bcoz if i go for floating.. i will get the low return on the bond.
No it works like:
in an increasing int case you will wish to receive floating and pay fix and hence gain by the difference, so u will enter in a payer swap
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