Floating Rate Notes

Floating Rate Notes 2 Introduction to Floating-Rate Notes A floating rate note is a bond with a coupon that is indexed to a benchmark interest rate Possible benchmark rates include US Treasury rates, LIBOR, prime rate, municipal and mortgage interest rate indexes Examples of floating-rate notes

TREASURY FLOATING RATE NOTE TERM SHEET

TREASURY FLOATING RATE NOTE TERM SHEET I ISSUER United States Treasury II DATED DATE Last calendar day of a month III ISSUE DATE Original issue offerings will be issued on the last calendar day of a month, or the first business day thereafter Reopening offerings will be issued on the last Friday of a

governing documentation for the floating rate notes: “Interest Period,” “Notes” and “LIOR ” Such terms are included herein for illustrative purposes only and should be coordinated with definitions found elsewhere in the relevant governing documentation for the floating rate notes

A primer on floating-rate bond funds - Vanguard

compare floating-rate funds and typical fixed income products, highlighting differences between their primary risk-and-return drivers We then analyse past performance of floating-rate funds in rising-rate environments Lastly, we review these funds’ potential role in a portfolio and discuss aspects to consider before investing in them

Floating Rate Note Pricing Specifications

Floating rate notes are priced on All-in price per R100 nominal The following methodology is used to determine the All-in price of the FRN: Generate coupon payment date Determine the mid swap zero rate corresponding to the coupon date Calculate the forward rate from the calculated discount factor for each

ARRC Releases Appendix to SOFR Floating Rate Notes

Overnight Financing Rate (SOFR) Floating Rate Notes (FRN) Conventions Matrix The Matrix, which was issued in August 2019, identifies considerations relevant to using SOFR – the ARRC’s recommended

A$300,000,000 Floating Rate Notes due 2023

Floating Rate Notes due 2023 The notes will mature on October 27, 2023 The notes will bear interest at a floating rate equal to three-month BBSW plus 1 720 Interest on the notes is payable quarterly on the 27th day of each January, April, July and October, commencing January 27, 2017 The notes may not be redeemed prior to maturity unless

$2,750,000,000 $1,400,000,000 Fixed-to-Floating Rate Notes

The fixed-to-floating rate notes due 2026, which we refer to as the 2026 notes, will mature on November 19, 2026 The 2026 notes will bear interest from and including November 19, 2020 to, but excluding, November 19, 2025 at a fixed annual rate of 1 045 , payable semiannually in arrears, on May 19 and November 19 of each year, beginning on May 19,

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Debt Instruments and Markets Professor Carpenter Floating Rate Notes 1

- floater, FRN, ARN, VRN, benchmark interest rate, index

Concepts and Buzzwords

y Floating Rate Notes - Cash flows - Valuation - Interest Rate Sensitivity

Reading

y Veronesi, Chapter 1 y Tuckman, Chapter 18 Debt Instruments and Markets Professor Carpenter Floating Rate Notes 2

Introduction to Floating-Rate Notes

y A floating rate note is a bond with a coupon that is indexed to a benchmark interest rate. y Possible benchmark rates include US Treasury rates, LIBOR, prime rate, municipal and mortgage interest rate indexes. y Examples of floating-rate notes - Corporate (especially financial institutions) - Adjustable-rate mortgages (ARMs) - Governments (inflation-indexed notes)

Floating Rate Jargon

y Other terms used for floating-rate notes include y FRNs y Floaters and Inverse Floaters y Variable-rate notes (VRNs) y Adjustable-rate notes y FRN usually refers to an instrument whose coupon is based on a short term rate (3-month T-bill, 6-month LIBOR) y VRNs are based on longer-term rates y (1-year T-bill, 5-year T-bond)

Debt Instruments and Markets Professor Carpenter Floating Rate Notes 3 Cash Flow Rule for Plain Vanilla Semi-Annual Floater

y The basic semi-annual coupon floating rate note has the coupon indexed to the 6-month interest rate. y Each coupon date, the coupon is equal to the par value of the note times one-half the 6-month rate quoted 6 months earlier, at the beginning of the coupon period. In other words, the time t coupon payment as percent of par is

t-0.5 r t . y The note pays par value at maturity.

Floating Rate Note Cash Flows

0 0.5 1 ... T t ...

y Each coupon is based on the previous 0.5-year rate. y Only the next coupon is known at the current date. The later ones are random.

Debt Instruments and Markets Professor Carpenter Floating Rate Notes 4

Example: Two-Year Semi-Annual Floater

What are the cash flows from $100 par of the note in this scenario? y The first coupon on the bond is 100 x 0.0554/2=2.77. y Later coupons set by the future 6-month interest rates. y For example, suppose the future 6-month interest rates turn out as follows:

0 0.5 1 1.5 2 5.54% 6.00% 5.44% 6.18% Floater Cash Flows: 2.77 3.00 2.72 103.09 0 0.5 1 1.5 2 100 x 0.06/2

Replicating a T-Year Floater with 0.5-Year Par Bonds

Consider the following trading strategy:

y At time 0, buy a 0.5-year par bond: pay $1. y At time 0.5, buy another 0.5-year par bond: collect $1+ r

0.5 /2, pay $1 = collect $r 0.5 /2 y At time 1, buy another 0.5-year par bond: collect $1+ 0.5 r 1 /2, pay $1 = collect $ 0.5 r 1 /2) y and so on, every six months until floater maturity date T y At time T: collect $1+ T-0.5 r T /2 Debt Instruments and Markets Professor Carpenter Floating Rate Notes 5

0 0.5 1 T 1.5 ...

A Semi-Annual-Coupon Floater is Equivalent to a 0.5-Year Par Bond

y A dynamic strategy of strategy of rolling six-month par bonds until floater maturity, collecting the coupons along the way, replicates the cash flows of a floater. y So as semi-annual coupon floater is equivalent to the six-month par bond in its replicating trading strategy. y Like its replicating trading strategy, a floater is always worth par on the next coupon date with certainty. y Its coupon is set to make it worth par today. y The duration of the floater is therefore equal to the duration of a six-month par bond. y Their convexities are the same too.

Debt Instruments and Markets Professor Carpenter Floating Rate Notes 6

Class Problems

Assume the 0.5-year rate is 5.54%. 1) What is the duration of a semi-annual paying floating-rate note? 2) What is the dollar duration of $100 par of this note? 3) What is the convexity of this floater? 4) What is the dollar convexity?

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[PDF] Floating Rate Notes - New York University