Deleveraged Floater


DEFINITION of 'Deleveraged Floater'

A fixed-income instrument with a floating coupon rate that is a product of the reference interest rate, or index, and a leverage factor of less than one, plus a fixed margin. The deleveraged floater gets its name from the fact that its coupon rate is a fraction of the reference interest rate. If the leverage factor is greater than one, the instrument would be a leveraged floater. The reference rate used for such floaters is usually a widely referenced benchmark such as LIBOR, treasury rate or the federal funds rate.

BREAKING DOWN 'Deleveraged Floater'

The coupon rate for a deleveraged floater is calculated as follows:

(Reference Interest Rate x Leverage Factor) + Fixed Margin.

As an example, consider a deleveraged floater with quarterly coupon payments based on the federal funds rate and a leverage factor of 0.6, with a margin of 1%. At the time of the first coupon payment, if the federal funds rate is 4%, the coupon rate on this deleveraged floater would be 3.4%. If the federal funds rate is 3% at the time of the next coupon reset, the coupon rate would now be 2.8%.

  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  4. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse ...
  5. Treasury Note

    A marketable U.S. government debt security with a fixed interest ...
  6. Floater

    A bond or other type of debt whose coupon rate changes with market ...
Related Articles
  1. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  2. Insurance

    Consider Prime Rate Funds For More Income

    These funds may give you the reliable stream of income you need when you're retired.
  3. Forex Education

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  4. Mutual Funds & ETFs

    Floating-Rate Mutual Funds: Rewards And Risks

    In an economy with low interest rates, investors need to get creative in order to reap high returns.
  5. Professionals

    Common Interview Questions for Fixed Income Traders

    Discover a list of potential questions and answers commonly asked in job interviews for a candidate applying for a position as a fixed-income trader.
  6. Investing

    In Search of the Rate-Proof Portfolio

    After October’s better-than-expected employment report, a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall.
  7. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  8. Financial Advisors

    Ditching High-Yield Bonds for Plain Vanilla Ones

    In a low-rate environment, it's tempting to go for higher yield bonds. However, you might be better off sticking with the plain vanilla ones.
  9. Bonds & Fixed Income

    What is an Indenture?

    An indenture is a legal and binding contract between a bond issuer and the bondholders.
  10. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  1. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  2. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  3. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  4. Can mutual funds use leverage?

    Traditionally, mutual funds have not been considered leveraged financial products. However, a number of new products have ... Read Full Answer >>
  5. How do hedge funds use leverage?

    Hedge funds use several forms of leverage to chase large returns. They purchase securities on margin, meaning they leverage ... Read Full Answer >>
  6. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center