While we're focused on the fixed leg's sensitivity to rates, we can't ignore the role of the floating leg as it influences the overall interest rate sensitivity depending on the reference rates. In standard overnight rate base swaps, such as those tied to SOFR, the floating legs sensitivity is near zero since it resets daily. But when the floating leg is based on a term rate like EURIBOR, its interest rate sensitivity becomes more complex. Take for example, a two year swap with a fixed leg versus six month EURIBOR while duration isn't commonly used to measure the interest rate sensitivity of swaps. Since practitioners typically use DV01. It's a helpful concept here for an intuitive understanding. For a two year swap with annual payments, the duration of the fixed leg is close to two years at trade inception, as time passes and the swaps maturity shortens the fixed legs duration decreases as indicated by the declining red line on the screen. The floating leg, however, behaves differently on the day of the first six month EURIBOR fixing the floating leg effectively becomes a six month fixed leg because any changes in EURIBOR after this fixing won't affect the next payment.

In IBOR based swaps, such as EURIBOR the floating rate resets at regular discreet intervals in our example, every six months rather than daily. This means that on the fixing dates, the floating leg has a duration of six months. As time progresses, say one month after the fixing date, the duration of the floating leg decreases to around five months and so on until the next reset when it jumps back to approximately six months. This gives the floating leg a cyclical sensitivity pattern as it decreases, and then resets periodically as indicated by the green line shown on screen. It's also important to note that the fixed and floating legs have opposite sensitivities in a two year receiver swap. The fixed rate receiver benefits from a decrease in the two year swap rates, but may experience a negative impact when short-term EURIBOR rates decrease. However, because the fixed legs duration at around two years is significantly longer than the floating legs initial six month duration, the overall effect of a fall in interest rates remains positive for the receiver. This is because a reduction in interest rates will increase the market value of the fixed leg, which is being received by more than the market value of the floating leg will fall. Since interest rate sensitivity measured by duration is higher on the fixed leg than the floating leg. In other words, the same magnitude of interest rate movement has different market value impacts on the two separate legs. In practical terms, the swaps overall sensitivity to rate changes is less than the fixed legs. Sensitivity alone would imply the floating legs cyclical duration makes the swap less sensitive to parallel shifts in the yield curve.