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What are ‘Floating rate notes’?

These are bonds where the coupon is not fixed, but based on a reference rate, typically LIBOR. They do not exhibit the same degree of interest rate sensitivity as conventional bonds. The majority of floating rate loans (FRNs) will be issued with maturities between two and ten years and will be senior debt. However, there is a class of perpetual FRNs which you may encounter from time to time of which the majority are subordinated debt (rank below other debt owed by the issuer in the event of default).

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