võlakirjuFloatingrate

Võlakirju Floating rate, also known as floating-rate notes or FRNs, are a type of debt instrument where the interest rate paid to the investor is not fixed for the life of the bond. Instead, the interest rate is periodically reset based on a benchmark interest rate, such as LIBOR, SOFR, or a government bond yield, plus a predetermined spread.

The primary characteristic of a floating-rate note is its variable coupon payments. When the benchmark rate increases, the coupon payments on the FRN also increase. Conversely, if the benchmark rate falls, the coupon payments decrease. This feature provides a degree of protection against rising interest rates, as the income generated by the bond adjusts upwards.

The spread is a fixed percentage that is added to the benchmark rate. It reflects the creditworthiness of the issuer and the general market conditions for similar debt. For example, an FRN might pay SOFR + 50 basis points (0.50%). If SOFR is at 2%, the investor would receive an annual interest rate of 2.5%.

Floating-rate notes are typically issued by corporations and governments. They are attractive to investors who are concerned about interest rate risk and wish to maintain a certain level of income that keeps pace with market fluctuations. For issuers, FRNs can offer a way to manage their interest expense if they anticipate rates will fall. The maturity of floating-rate notes can vary widely, from short-term to long-term.