Definition for: Floating-Rate Note
A "floating-rate note" is a debt security the interest rate of which is periodically adjusted. For example, a bond that with an adjustable rate, which is readjusted every six months, is a floating-rate note. The rate is adjusting according to a market reference rate such as the federal funds rate, and the bond's coupon equals this rate (taken at the given interval) plus a spread. These notes are the investment equivalent of adjustable rate mortgages, and while they are attractive to investors who want to minimize the risk of rising interest rates, they also provide a lower yield than bonds of the same quality that do not have a variable rate.
