Suppose I borrow (at the Euribor) 100M euros to buy a 5%-bond, maturity 12Y, price 100. I enter in a swap where I pay a 4,50% fixed rate and I receive the Euribor. The risk free interest rate is 4,40%.My asset swap position is then worth : 100M?*0,5%*sum(discount factors @ 4,40%, year : 1,...,12).Two years later, suppose all the interest rates drops by 0,5%. The duration of my obligation is 7,7. How can I describe my PnL ? Is it correct to say :-I have a profit on my bond of 7.7*0.5%*100-I have a loss on the interests on the coupons of the asset swap : 100M?*0,5%*sum(discount factors @ 3.90%, year : 1,...,10)?Thank you for yours answers !

if held to maturity you will get 0.5% per annum. the pv of that can obtained by discount along the curve.if nothing changes, your profit comes purely from carry.

When you say that I will get 0.5% per annum, where does come from this profit ? Because, if I hold to maturity the bond, I will lose interests on the annual pay-offs of my asset swap, as the interest rates have dropped.

You make on the bond side... As dave says, assuming all is well (i.e. yours isn't a famous Irish/German institution ), you carry the position to make 0.5%.

Ok I understand, for me nothing changes, only if I sell the bond and close the swap.