Floating-Rate Bonds Revisited: The New 'Old Maid?'
4 Pages Posted: 20 Dec 2015
Date Written: February 1, 2015
In “Old Maid,” the kids’ card game, the loser was left holding the lone “Old Maid” card. Today, investors holding floating rate bonds (FRBs) or FRB funds may end up in a similar situation – unable to “discard” potentially illiquid bonds as they lose value.
Last year, an article from the Brandes Institute, “Floating Rate Bonds: Switching One Risk for Others,” showed these instruments carry risks that could potentially outweigh their rewards. This follow-up piece, featuring insights from Brandes Fixed Income Portfolio Manager/Analyst Timothy Doyle, CFA and other sources, seeks to expand on the FRB risk discussion, focusing on liquidity and credit risks.
Keywords: floating rate bonds, collateralized loan obligations, liquidity risk, credit risk
JEL Classification: G10, G11, G14, G15, G20, G22, G23, G30
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