How Floating Bond Coupons Reset Over Time
Summary
Hollow Point Trading shares a short explainer on how floating bond coupons reset on a set schedule rather than whenever market rates move. The example uses a reference rate of 3% plus 2 percentage points, producing a 5% annual coupon, or $50 in interest on $1,000 of principal.
https://youtu.be/B7T4Pumh87g
A floating coupon resets on its own schedule #Shorts
A floating coupon does not necessarily change every time market rates move. Imagine a hypothetical bond pays a reference rate plus two percentage points. At its reset date, the reference rate is three percent, making the annual coupon rate five percent. On one thousand dollars of principal, that rate corresponds to fifty dollars of annual intere...
