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.

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