Floating-Rate Bond
A bond whose coupon resets periodically against a reference rate rather than staying fixed.
Formula
Coupon = Reference Rate at Reset + Fixed Spread
Unit
%
In depth
Because the coupon adjusts with rates, a floating-rate bond's price stays close to par regardless of what rates do, which makes its duration very short — usually just the time to the next reset. That is exactly the property wanted when rates are expected to rise, and it is why floating-rate funds attract money in tightening cycles. The trade-off is that income falls when rates fall, so the instrument protects capital and not cash flow. Credit spread risk remains in full, since only the reference rate resets, not the spread.
Worked example
A bond paying the 182-day treasury bill rate plus 150 basis points resets every six months. If the bill rate moves from 6.6% to 7.4%, the coupon moves from 8.10% to 8.90% and the price barely changes.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Floating-Rate Bond” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.