inverse floater investment & finance definition

A derivative security that has a yield that is inversely related to interest rates. Inverse floaters are one part of a long-term bond. A portion of the bond's current interest income is used to pay money market rates to holders of the regular floating-rate notes. The remainder of current interest and changes in the bond's market value are earned by holders of the inverse floaters. Holders of this type of security can have major losses as a result of increases in interest rates. These securities are used primarily, although not always successfully, by professional portfolio managers.