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."
BREAKING DOWN '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.