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.

BREAKING DOWN '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. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  2. Residual Income

    The amount of income that an individual has after all personal ...
  3. Reverse Floater

    A floating-rate note in which the coupon rises when the underlying ...
  4. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  5. Residual Value

    How much a fixed asset is worth at the end of its lease, or at ...
  6. Bond

    A debt investment in which an investor loans money to an entity ...
Related Articles
  1. Investing

    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.
  2. Investing

    Valuing A Company Using The Residual Income Method

    Residual income is the income a company generates after accounting for the true cost of its capital, which is the cost of funds it uses to finance its business.
  3. Investing

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  4. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  5. Financial Advisor

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  6. Investing

    Taxation Rules for Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  7. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  8. Investing

    Should You Consider Muni Bonds?

    Municipal bonds come in two types. General obligation bonds repay their holders through taxes. They often have low interest rates, but they’re safe.
  9. Investing

    How To Choose The Right Bond For You

    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.
  10. Investing

    Consider These Municipal Bond ETFs

    Though relatively low-risk, there are still some factors to consider when taking the plunge into municipal bond ETFs.
RELATED FAQS
  1. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  2. What is the difference between residual income and passive income?

    Learn how passive income helps pay the bills with little work involved. Determine how residual income affects your ability ... Read Answer >>
  3. What is the difference between residual income and savings?

    Discover the differences between various forms of income and their functions, including residual, disposable and discretionary ... Read Answer >>
  4. What is the best app to track my residual income?

    Learn about apps that help you manage and track your residual income whether you have complex portfolios with multiple investments ... Read Answer >>
  5. How are municipal bonds taxed?

    Discover information about trading municipal bonds, specifically the various tax implications municipal bonds have at state ... Read Answer >>
  6. What are the risks of investing in a bond?

    The most well-known risk in the bond market is interest rate risk - the risk that bond prices will fall as interest rates ... Read Answer >>
Hot Definitions
  1. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  2. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  3. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  4. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  5. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  6. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
Trading Center