1 Year Libor
Corporate bonds also called corporates are debt obligations, or IOUs, issued by private and public corporations. Many consumers wrongly believe this honeymoon period of having a preset low monthly payment needs to be as short as it is sweet. Continuously callable bonds or those callable on 30 days notice will be excluded if a call protection date is specified. When the dollar price of a bond is above its face value, it is said to be selling at a premium.
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E-mail, FTP, and web service delivery are available. Click here to subscribe! Want a custom price quote? In some cases, the reset period will be determined by the index used. Fed funds floaters, for example, might reset daily because the rate is an overnight rate, while T-bill floaters usually reset weekly following the weekly T-bill auction.
Some floaters, particularly those with more frequent resets, set their rate as of a date prior to the Coupon payment The actual dollar amount of interest paid to an investor. The amount is calculated by multiplying the interest rate of the bond by its face value. The period between the date the rate is set and the Payment date The date that principal and interest payments are paid to the record owner of a security.
Day count periods can vary by Issuer The entity obligated to pay principal and interest on a bond. Payment Periods Interest payments on floaters may be made monthly, quarterly, semiannually or annually. Interest on floaters is usually not compounded, but the more frequent the payments, the more the investor stands to earn from reinvesting. The higher the prevailing interest rate for reinvested funds, the more noticeable this potential compounding effect will be.
Maturity Floaters may be issued with any maturity, and those with longer maturities generally carry a slight yield Premium The amount by which the price of a bond exceeds its par value. The chance that an actual return will be different than expected, including losing some or all of the invested amount.
There are many types of risk such as market risk, credit risk, interest rate risk, exchange rate risk, liquidity risk, and political risk.
Interest Rate or Coupon The feature of a bond that denotes the interest rate coupon rate it will pay and the date on which the interest payment will be made.
Note too that floaters tied to indices such as COFI or Prime, which tend to lag behind the market, may perform better in a falling-rate environment, while floaters tied to coincident market indices such as LIBOR may do better in a rising-rate environment. Floaters tied to T-bills, meanwhile, can suffer from falling rates created by high T-bill demand during times of political crisis or extreme market shifts. Investors should remember that not all indices perform alike under different interest rate scenarios.
Valuation The Secondary market Market for previously issued securities. As with all securities, supply and demand must be taken into consideration. With respect to demand, investors should keep in mind that securities structured to meet the needs of a particular investor may have limited Liquidity A measure of the relative ease and speed with which a security can be purchased or sold in a secondary market also known as or marketability.
Basis Risk Basis generally refers to the difference between two indices. Basis risk refers to the possibility that this difference will change in an unanticipated manner.