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.

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RELATED FAQS
  1. How do interest rates affect a bond's coupon rate?

    Find out how the changes in the national interest rate affect the coupon rates of newly issued bonds and why coupon rates ... Read Answer >>
  2. What is the difference between LIBID and LIBOR?

    Both LIBID and LIBOR are rates primarily used by banks in the London interbank market. The London interbank market is a wholesale ... Read Answer >>
  3. What is the difference between LIBOR, LIBID and LIMEAN?

    LIBOR, LIBID and LIMEAN are all reference rates used to benchmark short-term interest rates. The London Interbank Offered ... Read Answer >>
  4. How does a bond's coupon rate affect its price?

    Find out how a bond's coupon rate influences its price, including the role of government-dictated interest rates and the ... Read Answer >>
  5. How does a bond's coupon interest rate affect its price?

    Find out why the difference between the coupon interest rate on a bond and prevailing market interest rates has a large impact ... Read Answer >>
  6. What are the differences between the Federal Funds Rate and LIBOR?

    Learn the key differences between the federal funds rate and the London Interbank Offered Rate, including currency denomination ... Read Answer >>
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