- By convention always assume, coupons are semi-annual.
Floating Rate Notes
Floating rate notes, often called "floaters," are a type of bond where the interest payments aren't fixed, but instead adjust up or down based on a market interest rate benchmark like the federal funds rate or SOFR, plus a set extra amount called a credit spread.
Attention
Spread on a floating-rate note doesn’t change once the bond is issued. It’s baked into the deal, hard-coded in the fine print
Inverse floaters
They’re issued by companies or governments betting they’ll look more creditworthy later, luring investors with the promise of higher payouts down the line while keeping early costs cheap.
Step-up Coupon Bonds
These bonds have predetermined rate hikes baked into the contract—say, 3% for the first two years, 4% for the next three, 5% after that.
Payment in Kind Bonds
Payment-in-kind (PIK) bonds let issuers skip cash interest payments by giving you more bonds or inflating your principal instead. It’s a move for companies too broke to pay now.
Index Linked Bonds
Principal, coupons, or both are pegged to an index (usually inflation). Example: TIPS in the U.S.
- Buy $1,000 at 2% coupon.
- CPI rises 3% → principal becomes $1,030.
- Coupon = 2% × 1,030 = $20.60.
They hedge inflation, but tank in deflation or when real yields rip higher (see 2022 TIPS bloodbath).