Residual Interest Bonds - RIBS

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DEFINITION of 'Residual Interest Bonds - RIBS'

A type of inverse floating-rate bond created by dividing the income from a municipal bond into two portions. The municipal bondholder will create two new securities: a primary direct floating-rate bond and a residual inverse floating-rate bond. The floaters will be linked to a reference interest rate, such as LIBOR, and the municipal bond's income will be used to pay the coupon on the direct floater, with any remaining income going toward the residual interest bond.

INVESTOPEDIA EXPLAINS 'Residual Interest Bonds - RIBS'

Because the residual interest bond is an inverse floater and only pays a residual income, its price will be highly sensitive to changes in interest rates. As market interest rates increase, investors can expect to see large decreases in the value of a residual interest bond.

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Residual Interest

    1. A charge for borrowing money that accrues on a credit card ...
  3. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  4. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  5. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse ...
  6. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
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