Three types of bonds: Part 2 - Floating rate notes

The article discusses three main types of bonds: fixed rate bonds, floating rate notes, and inflation-linked bonds. Each type is suitable for different economic conditions.

Holding a mix of fixed rate, floating rate, and inflation-linked bonds is important because it provides protection against varying economic conditions, such as changes in interest rates and inflation.

Floating rate notes differ from fixed rate bonds in that their interest payments fluctuate with market interest rates, providing potential benefits when rates rise, unlike fixed rate bonds which have constant interest payments.

Inflation-linked bonds help protect an investment portfolio from the eroding effects of inflation by adjusting their interest payments based on inflation rates, ensuring that the investor's purchasing power is maintained.

Yes, the portfolio weighting of different bonds can change depending on the investor’s view of future interest rate movements and economic conditions, allowing for strategic adjustments to optimize returns.

Yes, bonds are considered suitable investments across all economic cycles, as they offer stability and protection against various economic risks when appropriately diversified.

The main advantage of including floating rate notes in a bond portfolio is their ability to provide higher returns when interest rates rise, as their interest payments adjust with market rates.

Investors can protect themselves from unpredictable interest rate changes by diversifying their bond holdings across fixed rate, floating rate, and inflation-linked bonds, ensuring a balanced approach to risk management.