Editing Openai/68df4a3a-428c-8013-a459-5cff8e17edde (section)

=== Assistant: Got it — let’s make this super clear. ===
Got it — let’s make this super clear.

==== A floating rate bond is a bond where the interest payments change over time because they are tied to a benchmark interest rate (like LIBOR, SOFR, or U.S. Treasury rates). ====

So instead of paying a fixed interest rate (like 5% every year), the bond pays something like:

Benchmark Rate + a Spread (extra %).

==== - Floating bond pays SOFR + 2%. ====
* If SOFR = 3%, you get 5%.
* If SOFR rises to 4%, you get 6%.
* If SOFR falls to 2%, you get 4%.

👉 Your interest payments “float” (go up or down) as market rates move.

==== - Protection against rising interest rates → payments increase when rates go up. ====
* Less risk of losing value in a high-interest-rate environment.

==== - They may pay lower interest at the start (if market rates are low). ====
* Attractive to investors during uncertain rate environments, making it easier to raise money.

==== - If interest rates fall, the bond pays less than a fixed-rate bond would. ====
* Income becomes unpredictable compared to fixed-rate bonds.

✅ In Simple Terms:
A floating rate bond is like a loan where the interest bill changes with the market. If rates go up, you earn more; if rates go down, you earn less.

Would you like me to also compare floating rate bonds vs. fixed rate bonds in a simple table?