Andrew Allentuck was kind enough to quote me in his Investment Executive piece, A life preserver for rising interest rates:
“[Floaters] are not a one-way street and can just as readily generate price losses if spreads open up,” says James Hymas, president of Hymas Investment Management Inc., a Toronto-based firm that specializes in fixed-income investing. “The spreads can open up for the specific issue, for any category of issuer that ranks below the Government of Canada or because an issuer has subordinated the floater [or, indeed, any other bond] by issuing more debt or more senior debt.”
One very important point to note is that even though floaters usually are short-term notes, they have been issued as long-dated obligations in the past. Says Hymas: “Where an investor holds a long-dated floater, there’s more time for credit-quality issues to arise. In that case, rate resets will matter less than quality deterioration and potential decline in liquidity if holders rush to sell and overwhelm buyers. This is all potential, but it did happen in 2008.”