Floating-rate note
A bond whose coupon resets to a reference rate plus a fixed margin. Resets remove nearly all the rate risk and none of the credit risk.
Where you will meet it
Floating-rate note appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Set out coupon designs that do not pay a fixed rate
“A floating-rate note pays a reference rate plus a quoted margin, resetting periodically, so its price stays near par and its interest rate risk is confined to the short period until the next reset.”
- Tell a floating-rate note's quoted margin apart from its discount margin
“A floating-rate note therefore carries almost no interest rate risk but full exposure to its required spread, so its price is a direct reading of the spread the market wants, mostly for credit.”
See also
Practise it
Practise floating-rate note until it is automatic: questions that explain every wrong option.
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