Investors are always looking for yield and a way to protect their interest payments. But changing interest rates can get in the way sometimes. Whether you’re looking for income investments or just want a different bond allocation, floating rate bonds might be a worthy alternative in the right environment.
Floating Rate Bonds
Also known as variable or adjustable rate bonds, floating rate bonds have an interest rate that periodically changes with the market rate. This reset period can be daily, weekly, monthly, biannually, or annually. The bond’s interest rate is tied to a benchmark interest rate index like the LIBOR, the federal funds rate, or a specific duration U.S. Treasury bond yield (in the case of Treasury floating rate notes).
When the reset period hits, the interest rate of the bond changes if the benchmark has changed. In turn the floating rate bond price doesn’t change much. Continue Reading…
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