Floating Rate Bond

Floating rate bonds deliver variable interest, determined by a coupon rate which changes according to the market interest rate, offering potential gains to investors.

Market Interest Rate Coupon Rate of Floating Rate Bond Coupon Rate of Fixed Rate Bond
up up Fixed
down down Fixed
Yield-to Maturity Variable Pre-determind

* Yield-to-Maturity (YTM) refers to the average rate of return where a bond is bought and held until maturity.

Illustrative Examples

On the Day of Purchase

Miss Lee invested in a 3-Year Floating Rate Bond with a face value of US$200,000 at the market price of 100% in November 2010. The coupon rate was determined as the 3-month USD London Interbank Offer Rate (LIBOR) + 7 basis points (bp). The bond pays interest quarterly and the interest rate adjusts depending on market condition.

On the Day of Purchase:
The 3-month USD LIBOR is 1.11%. The coupon rate is then 1.11% + 0.07% = 1.18%. p.a.

The interest return for the first 3-month period: US$200,000 face value x 1.18% x 3/12 = US$590


3 Months

3-month USD LIBOR : 1.54% p.a.up

The 3-month USD LIBOR rises to 1.54% p.a. The coupon rate becomes 1.54% + 0.07% = 1.61% p.a.

The interest return for the next 3-month period: US$200,000 face value x 1.61% x 3/12 = US$806

6 to 27 months

The 3-month USD LIBOR adjusts depending on market condition

33 Months

3-month USD LIBOR : 5.36% p.a.

The 3-month USD LIBOR rises to 5.36% p.a. The coupon rate becomes 5.36% + 0.07% = 5.43% p.a.

The interest return for the last 3-month period: US$200,000 x 5.43% x 3/12 = US$2,715

36 months

The total amount of interest return that Miss Lee received in 3 years is US$21,839.39, and the average annual return is 3.64% p.a.




Risk Disclosure Statement


The above is an illustration example and only for the ease of your understanding of our products. The actual amount shall depend on the actual amount of investment involved.

The information contained on this page is for reference only. Shanghai Commercial Bank ("the Bank") makes no warranty as to the accuracy or completeness of the information provided herein. It constitutes neither a solicitation nor an offer with respect to the purchase or sale of any security. Bond investments are not bank deposits and involve risks, including the possible loss of the principal amount invested. Investors in bonds denominated in non-local currency should be aware of the risk of exchange rate fluctuations, which may cause a loss of principal. Unless specified, these investments are not obligations of or guaranteed by the Bank. This investment service is not open to US citizens. Bond prices may go down as well as up. The Bank accepts no liability for any direct or consequential loss arising from use of this website. The Bank does not guarantee the existence of a secondary market for bonds.


Important Notes

  • This webpage has not been reviewed by the Securities and Futures Commission or any other regulatory authorities in Hong Kong.
  • This is an investment product. The decision to invest is yours but you should not invest in bonds unless the intermediary selling them has explained to you that the product is suitable for you having regard to your financial situation, investment experience and investment objectives.
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