Floating rate securities are bonds or notes with a variable coupon rate. The interest rate (coupon) changes periodically based upon current market rates which may be expressed and calculated as a “spread” to an existing security or index (sometimes referred to as the reference rate). An example might include 3 months LIBOR +0.20% which means the coupon rate will change every 3 months to the then current LIBOR rate plus 20 basis points. Unlike fixed rate bonds whose prices move inversely to interest rate changes and can be volatile , these securities carry minimal interest rate risk.
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