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. 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 ...
RELATED FAQS
  1. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
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. Fundamental Analysis

    Present Value Interest Factor of Annuity (PVIFA)

    PVIFA can be used to calculate the present value of a series of annuities by considering cash flows and depreciation.
  8. Mutual Funds & ETFs

    ETF Analysis: Select Sector Financial SPDR

    Find out more about the Financial Select Sector SPDR Fund, the characteristics of the exchange traded fund, and the suitability of fund.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total Bond Market

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.
  10. 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.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

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

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. 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 ...
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!