Reset Margin

AAA

DEFINITION of 'Reset Margin'

The difference between the interest rate of a security and the index on which the security's interest rate is based. The reset margin will be positive, as it is always added to the underlying index. This feature is most common with a floating-rate security. The reset margin is added to a reference rate, such as LIBOR, for floating rate obligations.

INVESTOPEDIA EXPLAINS 'Reset Margin'

For example, the interest rate of a floating-rate note is based on LIBOR plus 0.5%. The 0.5% is the reset margin, meaning that if LIBOR is 1% then the interest rate on the note is 1.5%. Banks can borrow money at LIBOR and, in order to realize profits on loans, will add the reset margin when lending funds.

RELATED TERMS
  1. Bond

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

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  3. Floating-Rate Note - FRN

    A note with a variable interest rate. The interest rate is usually ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote ...
  5. Discount Margin - DM

    The return earned in addition to the index underlying the floating ...
  6. Reference Rate

    An interest rate benchmark upon which a floating-rate security ...
RELATED FAQS
  1. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
  2. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  3. What are the differences between the Federal Funds Rate and LIBOR?

    In macroeconomics, the interest rate plays a crucial role in delivering an equilibrium on the assets market by equating the ... Read Full Answer >>
  4. What is the correlation between inflation and interest rate risk?

    There is a positive correlation between inflation and interest rate risk. Inflation basically occurs when there is too much ... Read Full Answer >>
  5. What is the correlation between term structure of interest rates and recessions?

    There is no question that interest rates have enormous macroeconomic importance. Many economists and analysts believe the ... Read Full Answer >>
  6. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  2. Bonds & Fixed Income

    The Fundamental Mechanics Of Investing

    Here's a story that demonstrates why stocks and bonds were created and how they are valued.
  3. Bonds & Fixed Income

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  4. Home & Auto

    The Bear On Bonds

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  5. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  6. 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.
  7. Bonds & Fixed Income

    What are Floating-Rate Notes?

    A floating-rate note is a debt instrument with an interest rate that “floats,” or varies. They are also called floaters.
  8. Professionals

    Will Consumer Spending Save 2015?

    Consumer spending is considered an important number (and it is), but a savvy investor will always look at "why" rather than just "what." You should too.
  9. Economics

    Examples Of Negative Interest Rates

    Negative interest rates seem like an abstract notion. But, they have practical consequences for an economy and are present all around us.
  10. Personal Finance

    Are Markets Ready For An Interest Rate Hike?

    Despite financial market fears over the uncertainty of Greece’s debt crisis and the recent drop in China’s stock-market, Federal Reserve Chairwoman Janet Yellen has reaffirmed the Fed’s plans ...

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!