Floating-rate is a type of interest rate that changes over time, based on an underlying benchmark interest rate. This means that the borrower's interest payments will vary depending on how the benchmark interest rate changes.
In the context of securitization, floating-rate securities are those that have a floating interest rate. This means that the investors in these securities will receive an income stream that changes over time, based on how the benchmark interest rate changes.
Floating-rate securities are often used in securitizations because they offer investors a higher yield than fixed-rate securities. This can be attractive to investors who are looking for a higher-yielding investment.
Here are some applications of floating-rate in securitization:
- Attracting investors: Floating-rate securities can be attractive to investors who are looking for a higher-yielding investment. This can be helpful for securitization issuers who are looking to attract investors for their securitizations.
- Managing risk: Floating-rate securities can help to manage risk in a securitization. By having a floating interest rate, the securitization issuer can reduce the risk of interest rate fluctuations.
- Providing liquidity: Floating-rate securities can provide liquidity to the securitization market. This is because they are often easier to sell than other types of securitization securities.