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inverse floater

 - 2 dictionary results
Financial Dictionary

Inverse Floater

A bond or other type of debt whose coupon rate has an inverse relationship to short-term interest rates.

Investopedia Commentary

With an inverse floater, as interest rates rise, the coupon rate falls. When short-term interest rates fall, an inverse floater holder benefits in two ways:

1) The bond appreciates in price
2) The yield increases

Related Links

Bond Basics Tutorial
Advantages Of Bonds

See also: Bond, Coupon Rate, Floater

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Financial Dictionary

inverse floater

A derivative security that has a yield that is inversely related to interest rates. Inverse floaters are one part of a long-term bond. A portion of the bond's current interest income is used to pay money market rates to holders of the regular floating-rate notes. The remainder of current interest and changes in the bond's market value are earned by holders of the inverse floaters. Holders of this type of security can have major losses as a result of increases in interest rates. These securities are used primarily, although not always successfully, by professional portfolio managers.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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