Here let's take a slightly technical look at interest rate risk in an interest rate swap. While it might seem intuitive to think that a payer of a fixed rate would benefit from rising floating rates, the reality is more nuanced. For instance, if you entered into a swap to pay a fixed rate of 3.75% over two years in return for SOFR, and SOFR initially sits at 2%, even if SOFR rises to 2.5%, the net cash flow could still be negative. Additionally, the swaps net impact is only fully realized at maturity when the final SOFR rate and all compounded cash flows are calculated. However, in practice, we need to be able to assess the swaps mark-to-market or MTM value at any point in time. To get an understanding of how this can be achieved, let's consider a two year US dollar OIS swap where we receive a fixed rate of 3.75% versus SOFR in the morning with both legs paid annually. Now, if the two year OIS rate drops by two basis points to 3.73% that afternoon, we can calculate the mark-to-market or market value of the swap position by assuming we'd close out the swap. With another market trade. Since we originally received 3.75%, we'd have to pay 3.73% to neutralize the position. This results in a gain because we're receiving a higher fixed rates than the new market rates. The SOFR legs in these two transactions would cancel each other out, leaving us with a net positive cash flow of 0.02% at the end of each year. The sum of these two discounted cash flows would give us the current net present value or mark-to-market value of the swap. This approach is simplified because it assumes we're still on the trade date, but it highlights that the primary driver of the two year OIS value isn't daily SOFR changes, but rather shifts in the two year overnight index swap or the OIS rate itself. In other words, the main interest rate sensitivity in a two year OIS is to changes in the two year rate. Just as a five year OIS would be primarily influenced by movements in the five year rate. So what does this mean in practical terms? The main interest rate sensitivity of the swap aligns with changes in the market rate that corresponds to the swaps remaining time to maturity. In summary, this means that as the swaps maturity shortens over time, its interest rate sensitivity shifts accordingly to match the remaining term.