Inverse floating-rate note

Inverse floating-rate note

A variable-rate security whose coupon rate increases as a benchmark interest rate declines.

Inverse Floating-Rate Note

A bond or other debt security with a variable coupon rate that changes in inverse proportion to some benchmark rate. For example, an inverse floating-rate note may be linked to LIBOR; as the LIBOR decreases, the coupon rate increases and vice versa. An inverse floating-rate note allows a bondholder to benefit from declining interest rates. It is also called an inverse floater.
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This requires creation of another innovative security, an inverse floating-rate note ("bull floater"), whose coupon rate goes up when market rates fall.
For example, suppose that a firm can issue an inverse floating-rate note at 21 percent minus the London Interbank Offer Rate (LIBOR) in the Eurodollar market.
Bond market innovations and financial intermediation

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