Words are powerful, and for investors seeking income, the words “floating rate” are particularly alluring these days. The Federal Reserve is likely to raise interest rates again in December, and rates globally have risen sharply in just the past week. When rates rise, bond prices fall. But the coupons of floating-rate securities adjust higher, so they pay more and their prices are stable.
If only it were that simple. A wide array of floating-rate securities trade today, and the holdings of mutual funds with “floating rate” in their name vary widely.