Floating Rate Bonds

Floating Rate Bonds

News: The Government of India has announced the Sale (Re-issue) of Floating Rate Bonds, 2028’.

What are Bonds?
• Bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments.Generally, bonds come with a fixed coupon or interest rate. For example, you can buy a bond of Rs 10,000 with a coupon rate of 5%.
• Once the bond reaches maturity, the bond issuer returns the investor’s money.Fixed income is a term often used to describe bonds, since your investment earns fixed payments over the life of the bond.
• Companies sell bonds to finance ongoing operations, new projects or acquisitions.Governments sell bonds for funding purposes, and also to supplement revenue from taxes.
• A floating rate bond is a debt instrument that does not have a fixed coupon rate, but its interest rate fluctuates based on the benchmark the bond is drawn.
• Benchmarks are market instruments that influence the overall economy.For example, repo rate or reverse repo rate can be set as benchmarks for a floating rate bond.Floating rate bonds make up a significant part of the Indian bond market and are majorly issued by the government.
• For example, the RBI issued a floating rate bond in 2020 with interest payable every six months. After six months, the interest rate is re-fixed by the RBI.