• A floating rate bond is a bond with a variable interest rate, as opposed to a fixed rate bond whose interest rate does not fluctuate.

  • The interest rate is pegged to a short-term benchmark rate such as LIBOR or the federal funds rate plus a quoted spread or a rate that remains stable.
  • Many floating rate bonds have quarterly coupons, which means they pay interest four times a year, but some pay monthly, semiannually, or annually.
  • FRNs are attractive to investors because they can benefit from higher interest rates as the floating rate is periodically adjusted to reflect current market rates.