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coupon rates
#fixed #income
A plain vanilla bond or conventional bond pays a fixed rate of interest. In this case, the coupon payment does not change during the bond’s life. However, there are bonds that pay a floating rate of interest; such bonds are called floating-rate notes (FRNs) or floaters. The coupon rate of a FRN includes two components: a reference rate plus a spread. The spread, also called margin, is typically constant and expressed in basis points (bps). The spread is set when the bond is issued based on the issuer’s creditworthiness at issuance: The higher the issuer’s credit quality, the lower the spread. The reference rate, however, resets periodically. Thus, as the reference rate changes, the coupon rate and coupon payment change accordingly
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