PPT Slide

Floating rate securities

Coupon payments are reset periodically according to some reference rate.

reference rate + index spread

e.g. 1-month LIBOR + 100 basis points (positive index spread)

5-year Treasury yield - 90 basis points (negative index yield)

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Reference rate can be some financial index

e.g. return on the S & P 500 or non-financial index

e.g. price of a commodity or inflation index

(in 1997, US government begin issuing such bonds)