As investors throw money into Treasury bills and short-term CDs, the humble floating rate note sits in the background.
As investors seek yield in short-term certificates of deposit and Treasury bills, they should be aware of another fixed income play that takes advantage of today's higher interest rates. Enter the humble floating rate note. These instruments are fixed income securities that pay a coupon based on a reference rate that resets periodically. These can be issued by financial institutions, corporations and the federal government, typically coming in at 2- to 5-year maturities.
business. Duration, which is measured in years, is the gauge of a bond's price sensitivity to interest rate changes. Bond prices move opposite their yields, and issues with longer duration are more likely to see price swings as rates change. For floating rate notes, the duration is close to zero, while the fixed rate corporate bond market has a duration of 7½ years, Bonds said.
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