Super Floater

AAA

DEFINITION of 'Super Floater'

A floating-rate collateralized mortgage obligation (CMO) tranche whose coupon rate is determined by a formula based on an interest-rate index such as LIBOR. The coupon rate is leveraged i.e. it moves more than one basis point for each basis point change in the index.


A super floater can also refer to a leveraged floating rate note whose coupon rate changes are magnified (ratio greater than one) when the reference interest rate or index changes. Since their coupon rate moves in the same direction as interest rates, super floaters are suitable investments in a rising interest-rate environment.

INVESTOPEDIA EXPLAINS 'Super Floater'

As an example, a super floater coupon may be determined by the following formula: 2 x (one-year US$ LIBOR) - 4%. So if the one-year LIBOR is 3%, the coupon rate would be 2 x 3% - 4% = 2%. To prevent the coupon rate getting negative, a floor rate on the coupon is usually specified.

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  3. Floating-Rate Note - FRN

    A note with a variable interest rate. The interest rate is usually ...
  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. Tranches

    A piece, portion or slice of a deal or structured financing. ...
RELATED FAQS
  1. To what extent are utility stocks affected by changes in interest rates?

    Utility stocks are definitely subject to interest rate risk and can be significantly impacted by changes in interest rates. Competition ... Read Full Answer >>
  2. What is the difference between term structure and a yield curve?

    There is no difference between term structure and a yield curve; the yield curve is simply another name to describe the term ... Read Full Answer >>
  3. Why is term structure theory of importance to economists?

    The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >>
  4. What are the top high yield bond ETFs?

    Three of the most popular high-yield bond exchange-traded funds, or ETFs, are the Peritus High Yield ETF (HYLD), the SPDR ... Read Full Answer >>
  5. Why has the market for high yield bonds grown so much?

    Reasons for the rapid growth of the high-yield bond market include the creation of new types of issues, a prolonged period ... Read Full Answer >>
  6. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
Related Articles
  1. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  2. Personal Finance

    Financial Tips For People Who Hate Finance

    For people who hate financial planning, there's usually one big problem – which you can fix. Do it now.
  3. Investing

    Seven Investing Books For Your Summer Reading List

    It’s almost 4th of July, the season of summer reading. Picking up a book during your holiday can be a great opportunity to learn more investing.
  4. Savings

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  7. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  8. Economics

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  9. Professionals

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  10. Stock Analysis

    Playing Rising Rates with Ultra-Short Term Bonds

    With rising rates likely, investors may want to consider adding a dose of ultra-short bonds to their portfolios. Here are some ETFs to consider.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
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!