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Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like SOFR or federal funds rate, plus a quoted spread (also known as quoted margin). The spread is a rate that remains constant.
Repricing risk reflects the possibility that assets and liabilities will be repriced at different times or amounts and affect an institution’s earnings, capital, or general financial condition in a negative way. For example, the management may use non-maturity deposits to fund long-term, fixed-rate securities.
Floating rate loans are common in the banking industry and for large corporate customers. [4] [5] A floating rate mortgage is a mortgage with a floating rate, as opposed to a fixed rate loan. [6] In many countries, floating rate loans and mortgages are predominant. They may be referred to by different names, such as an adjustable rate mortgage ...
With the Federal Reserve continuing its rate tightening regime in 2018, fixed income investors have been embracing lower duration ideas, including floating rate notes. Floating rate notes, also ...
An interest rate mismatch occurs when a bank borrows at one interest rate but lends at another. For example, a bank might borrow money by issuing floating interest rate bonds, but lend money with fixed-rate mortgages. If interest rates rise, the bank must increase the interest it pays to its bondholders, even though the interest it earns on its ...
An overnight indexed swap (OIS) is an interest rate swap (IRS) over some given term, e.g. 10Y, where the periodic fixed payments are tied to a given fixed rate while the periodic floating payments are tied to a floating rate calculated from a daily compounded overnight rate over the floating coupon period. Note that the OIS term is not ...
A three-zone digital swap is a generalization of the range accrual swap, the payer of a fixed rate receives a floating rate if that rate stays within a certain preagreed range, or a fixed rate if the floating rate goes above the range, or a different fixed rate if the floating rate falls below the range.
The fund had invested a large percentage of its assets into adjustable rate securities. As interest rates increased, these floating rate securities lost value. This fund was an institutional money fund, not a retail money fund, thus individuals were not directly affected.