Floating rate notes

(FRN)

FRNs are almost immune to interest rate risk, considered conservative investments for investors who believe market rates will increase. The risk remaining is a credit risk.

Serious Information

Trivia

Floating rate notes are bonds with variable coupons, equal to money market reference rates, like LIBOR or federal funds rates, plus a spread. A note with a variable interest rate. The spread has a rate remaining constant. Almost all FRNs have quarterly coupons, meaning they pay out interest every three months, though counterexamples exist. From the beginning of each coupon period, a coupon is worked out by taking the fixing of a reference rate for a day and adding a spread.

The key difference between fixed and floating rate notes is a calculation of the coupon over the Floating rate notes can be an attractive addition. A floating rate note with a floor of 2% will not pay less than a 2% return even if the index plus the spread falls below 2%.

They protect investors against rises in interest rates, which have an inverse relationship with bond prices, but also carry lower yields than fixed notes of the same maturity. It's essentially the same concept as a adjustable-rate mortgage, except FRNs are investments (not debt).

Asset Swap - FRNs can also be obtained synthetically by combination of fixed rate bond and interest rate swaps.

Collars – if a floating rate note includes a cap and a floor this is called
a collar. This note will have a range of payment coupons with a minimum
amount of the floor level and a maximum amount of the cap level.

Floating rate notes do not assure the amount of income an investor will
receive from their holdings. There is no guarantee the investor will receive a stable or rising coupon rate.

Many an investor is loathing of the lack of risk a FRN manages to offer. Many do not want low risk.

Trivia

There are no genuine Federal Reserve notes from 1934. "Anyone who is offered them should contact the police or report it to their bank and withdraw from any transaction straight away." It is a common fraud. Sometimes it's Gold Dore bonds, or German Third Reich bonds, but 1934 FRNs seem to be the current con

In 2006 Ford Motor Credit Company announced the expiration of its offers to exchange a portion of its outstanding old notes for a new series of fixed rate notes and a new series of floating rate notes and cash. The exchange offers, which commenced May 2, 2006, expired at 7:00 a.m. New York City time on May 31, 2006.

Floater = Germany

Obligation à taux variable = France

In urban language floatin means 2 thumbs up

1. Meaning cool or awesome
2. Can also be used to describe things that are suspended in air/ levitating,

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