Floater

AAA

DEFINITION of 'Floater'

A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates). Also known as "floating-rate debt."

INVESTOPEDIA EXPLAINS 'Floater'

For example, a floater bond may have the coupon rate set at "T-bill rate plus 0.5%."

This type of instrument is more beneficial to the holder as interest rates are rising because it allows the holder to participate in the upward movement in rates. Conversely a floater is less advantageous to the holder when rates are decreasing because the rate at which they are receiving interest is declining.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Reverse Floater

    A floating-rate note in which the coupon rises when the underlying ...
  3. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  5. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse ...
  6. Reference Rate

    An interest rate benchmark upon which a floating-rate security ...
RELATED FAQS
  1. What is the difference between compounding interest and simple interest?

    Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... Read Full Answer >>
  2. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
  3. How does inflation affect a company's short-term investments?

    Inflation marginally erodes a company's short-term investments. Short-term investments are typically ultra-safe liquid assets, ... Read Full Answer >>
  4. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  5. How do you find accrued interest on a bond?

    A bond is a debt instrument issued by a company, government agency or municipality to raise money. Interest payments are ... Read Full Answer >>
  6. What are the main disadvantages of fixed income securities?

    Fixed-income securities attract investors because they provide guaranteed returns in the form of fixed, regular cash payments. ... Read Full Answer >>
Related Articles
  1. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  2. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  3. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  4. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  5. Stock Analysis

    Is it Time to Buy Floating Rate Bonds?

    The Fed’s awaited interest rate hike could finally be at hand. Are floating rate bonds the way to go?
  6. Investing Basics

    Treasury Inflation-Protected Securities (TIPS)

    Treasury inflation-protected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.
  7. Investing Basics

    What is the Coupon?

    In the financial world, “coupon” represents the interest rate on a bond.
  8. Retirement

    Facing Retirement? Look Beyond 100% Bonds

    Retiring doesn't mean putting all your money in bonds. There are two things to consider when it comes to be invested in bonds: growth and inflation.
  9. Mutual Funds & ETFs

    Is the PowerShares (PFEM) ETF a Good Bet Now?

    What you need to know if you are considering trading PowerShares Fundamental Emerging Markets Local Debt ETF.
  10. Mutual Funds & ETFs

    Anatomy of Emerging Markets Debt ETF (EMLC)

    This emerging market bond ETF offers a high yield, but there are dangers. Find out why.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center