Reverse Floater


DEFINITION of 'Reverse Floater'

A floating-rate note in which the coupon rises when the underlying reference rate falls. The floating rate resets with each coupon payment and may have a cap and/or floor. The underlying reference rate is often the London Interbank Offered Rate (LIBOR), the rate at which banks can borrow funds from other banks in the London interbank market, the most common benchmark for short-term interest rates.

BREAKING DOWN 'Reverse Floater'

For example, the coupon on a reverse floater may be calculated as: principal*(10%-LIBOR).

Floaters (bonds or other types of debt whose coupon rate changes with short-term interest rates) are also known as "floating-rate debt." Reverse floaters offer guaranteed principal and are an option for investors looking to benefit from falling interest rates.

  1. Coupon

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

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

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  4. Leveraged Floater

    A security, generally a bond, which has a leverage factor of ...
  5. Floater

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

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