Floating Interest Rate

Glossary

Banking

Floating Interest Rate

Debt instruments with floating interest rates are those where the interest paid to lenders and investors has a variable element. Floating-rate notes can be benchmarked to a variety of benchmarks, such as the Federal Funds rate or to Libor. Typically each quarter -- although the period can vary -- the coupon on the floating-rate bond resets to the prevailing level of the underlying benchmark. As Libor is being phased out, a new family of so-called risk-free floating-rate benchmarks has been created, such as SOFR (US), SONIA (UK), SARON (Switzerland), and €STR (euro).

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