Question: What do you mean by floating-rate fixed income bonds?
Answer: There are bonds which does not have fixed coupon rate for entire life, which is known as floating-rate security or floater which has several different types of securities with one common feature - The coupon rate will vary over the bond’s life. - The coupon rate is reset at designated dates based on the value of some reference rate adjusted for a spread. - For instance, floater delivered cash flows semi-annually and had a coupon formula equal to six-month LIBOR plus 75 points. -
Question: What is the difference between floaters and adjustable-rate security in bond market?
Answer: Usually, floaters have coupon rates that reset more than once a year for example semiannually, quarterly, or monthly. However, adjustable-rate or variable-rate security are those issues whose coupon rates reset not more than once annually.
Question: Can you describe few features of the floaters in bond market?
Answer: Following are the basic features of the floaters in bond market - A floater may have a restriction on the maximum (minimum) coupon rate that will be paid at any reset date called a cap floor. - The reference rate for most floaters is a benchmark interest rate or an interest rate index. A floater’s coupon could be indexed to movements in foreign exchange-rates, the price of a commodity for example crude oil, gold, silver etc., movements in an equity index. - Floater’s coupon rate typically moves in the same direction as the reference rate, but it is possible that floaters whose coupon rate moves in the opposite direction from the reference rate. Which are called inverse floaters or reverse floaters.
Question: What do you mean by junk bond?
Answer: Structures or bond’s with very high-yield are considered junk bond.