Reset Margin


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.

BREAKING DOWN '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.

  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. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  6. Reference Rate

    An interest rate benchmark upon which a floating-rate security ...
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