Floaters buoyedby demand

Investor concern that rising interest rates may erode the value of fixed-rate investments has fueled a boom in floating-rate notes. But in meeting this heightened demand, are issuers overexposing themselves to interest rate risk? John Caserta reports

Since the Federal Reserve announced its intention to raise interest rates at a “measured pace” in mid-2004, investors have turned their attention to floating-rate notes to hedge their investments. Issuers have responded to the increased demand for these instruments with a record level of issuance. But despite facing the risk of increased funding costs as interest rates rise and the possibility of an economic slowdown later this year, issuers continue to feed investor demand for floaters at an