This follows Tuckman's example in Chapter 2. When the yield is unchanged, a bond pulls to par. HOWEVER, the assumption of unchanged yield is unrealistic. Here we assume the term structure (of spot and forward rates) in unchanged. Specifically, this is a 2.5-year swap (or bond) where the fixed swap rate (or coupon) is 1.445%.

If we assume unchanged term structure then: As the swap matures, if its fixed rate (1.445% in this case) is LESS than the forward rate corresponding to the expiring six-month period, its price will INCREASE. On the other hand, if its fixed rate (1.445% in this case) is GREATER than the forward rate corresponding to the expiring six-month period, its price will DECREASE. Discuss this video here in our FRM forum: [ Ссылка ]

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