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Floating rate bonds
Floating rate bonds
Definition
Bond whose interest amount fluctuates in step with the market interest rates, or some other external measure. Price of floating rate bonds remains relatively stable because neither a capital gain nor a capital loss occurs as market interest rates go up or down.
Floating Rate Notes/Bonds are different than fixed rate notes because they pay out variable coupon interest payments at each period (monthly, quarterly, semi-annually or annually). The amount of these variable payments are determined by the current market interest rates such as the LIBOR (London Interbank Offered Rate) or Federal Funds Rate (FFR) + a "spread." A spread is a percentage point example 0.2 that remains constant.
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Keywords:
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