Floating Rate Note (FRN)

A Floating Rate Note (FRN) is a debt instrument, typically a bond, whose coupon payments are not fixed but are periodically adjusted based on a predetermined benchmark interest rate, such as the Secured Overnight Financing Rate (SOFR) or the London Interbank Offered Rate (LIBOR) replacement rates, plus a specified fixed spread. FRNs are primarily issued by governments, financial institutions, and corporations to manage interest rate risk, offering investors a hedge against rising interest rates because their income stream increases as the reference rate climbs.