Floating rate notes (FRNs), also known as floaters, are bonds with variable interest rates that are adjusted every three to six months. Typically, the rates are equivalent to money market reference rates such as Treasury bill rates or the London Interbank Offered Rate (LIBOR).

FRNs, which generally mature in about five years, are attractive to some investors because they offer protection against rising interest rates and typically pay out interest every quarter or roughly every three months. Because FRNs typically are insulated from interest rate risks, they are often considered conservative investments for investors who expect market rates to increase. FRNs also are attractive to some investors because they tend to have higher yields than fixed rate bonds, which decline in price when market rates increase.

There are drawbacks to FRNs, however. For one, they tend to pay lower yields than fixed rate notes of the same maturity. Another risk associated with FRNs is their price, which is closely tied to the maturity rate and the credit quality of the issuer.

Corporations, banks, or government-sponsored institutions like the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) generally issue FRNs. FRNs also have been a popular source of credit for commercial banks that are actively involved in Euromarket lending. Due to competition in Euromarket lending, there are several types of FRNs currently in use: perpetual floating rate notes have a variable rate but no maturity date; capped floating rate notes impose a limit on a borrower's maximum interest rate; mini-max FRNs have variable rates that only fluctuate within a certain range.