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Fabozzi-Handbook-17 Floating Rate Securities Introduction Floating Rates Securities are commonly calledfloaters . Floaters are issued in every sector of the bond market: ernment, agency, corporate, municipal, mortgage, asset-backed securities. The coupon formula depends on a variety of economic variables. The coupon payment depends on the level of the money market interest rate (LIBOR, Treasury). The coupon rate can be reset semiannually, quarterly, monthly, or weekly. Floating rate securities and adjustable rate securities are all counted as floaters . Market participants use spreads or margin measures to assess the relative value of a floater. General features of Floaters and major Product Types The coupon rate formula for a pure floater can be expressed as follows: 肀矏聿栱矐聿愴矎肀鬼矀聿曧矄 = 肀鬼矄聿図矄聿擁矄聿忢矂聿嗧矒聿傢矔聿 卤 肀疙矕聿愴矔聿嗧矃肀错矀聿擁矆聿婍矎 The four most common reference rates are: o LIBOR o Treasury bill yields o Prime rates and o Domestic CD A floater often imposes limits on how the coupon rate can float. o The cap is the um coupon rate that will be paid on any reset date. This is an unattractive feature from the investor鈥檚 . o The floor is the minimum coupon rate that can be paid under the contract. Thus, if the reference rate ever felt below the floor, the coupon rate will remain at the floor rate. When a floater possesses both a cap and a floor, this feature is referred to as a collar. An inverse floater offers a coupon rate that moves in opposite direction as the reference rate (unlike the floater): The general formula for the inverse floater is: 戆锯垝戆 脳 (肀呿睊肀擁睊肀燀睊肀涰睈肀掜睙肀庬薄肀? An inverse floater may also have a floor and a cap, just like a floater. L is referred to as the coupon l