Hi everyone,I'm trying to figure out what the relation of paying fixed to floating is for Interest Rate Swaps. Is the Mark-to-market higher when a counterparty pays a fixed rate or when a counterparty pays floating?I know the MTM will change as the market moves based on market variables such as changes in the level of interest rates, swap spreads, shape of the yield curve and fx rates. I know the dv01 will show the change in value of the swap with a 1 bp parallel shift of the yield curve. So for ex: the MTM change for a 50bp parallel shift will be approximately 50 * DV01.Any idea on the relationship? Thanks in advance for your help.

I would recommend reading some books like Tuckman or Flavell, amico, because your question makes no sense.

Most interest rate swaps are done at a rate such that the PV of the floating side equals the PV of the fixed side and there is no exchange of cash at trade inception (ignoring bid/ask and differences in credit/collateralization).

QuoteOriginally posted by: adamj1001Hi everyone,I'm trying to figure out what the relation of paying fixed to floating is for Interest Rate Swaps. Is the Mark-to-market higher when a counterparty pays a fixed rate or when a counterparty pays floating?I know the MTM will change as the market moves based on market variables such as changes in the level of interest rates, swap spreads, shape of the yield curve and fx rates. I know the dv01 will show the change in value of the swap with a 1 bp parallel shift of the yield curve. So for ex: the MTM change for a 50bp parallel shift will be approximately 50 * DV01.Any idea on the relationship? Thanks in advance for your help.At initiation, an interest rate swap should have a fair value of zero (ignoring credit risk considerations) and the fixed rate represents the par swap rate to the maturity of the instrument. As time moves forward, the yield curve will shift with expectations of future interest rates.The direction/magnitude of these changes relative to the yield curve at origination are what drives the MTM value of the instrument. Whether a party is payed fixed or float merely determines who owes whom money.Say you have a vanilla 10y IRS and you are paying fixed 3% against 3M USD Libor:If the yield curve steepens, expectations of future interest rates are going up (10y par swap increases), but you locked in your costs at 3% and will not have to pay these higher rates had you been paying float, so your MTM increases in value and you pocket a nice bonus.If the yield curve flattens or gets inverted, expectations of future interest rates are going down (10y par swap decreases), but you locked in your costs at 3% and will not be able to take advantage of these lower rates, so your MTM decreases in value and your boss heckles at you.Try the searching the student forum for help next time, these topics have usually been previously raised. Look up what a par swap rate is, and you might find bootstrapping interesting too. And if this is for a class report, use playful jargon like contango/backwardation to make you appear more sagacious than you are.

QuoteOriginally posted by: adamj1001Hi everyone,Is the Mark-to-market higher when a counterparty pays a fixed rate or when a counterparty pays floating?Think of it like bonds. Receiving fixed is like owning a bond (receiving fixed cash flows) and financing it 3m at a time. Paying fixed is the opposite: like shorting a bond. Swaps are generally/loosely a zero sum game between 2 counterparties. Meaning positive mtm for one side is negative mtm for another. mtms depend on the market variables like you said.