Why Corporate America Thinks Rates Will Never Rise: Caterpillar Inc. (CAT), The Coca-Cola Company (KO)

Are floating-rate bonds a smart investment?
Individuals considering buying this type of bond need to understand that their institutional-investor counterparts often find floating-rate bonds appealing simply because they help hedge against a known risk. For such institutions, the price of getting rid of that risk is often of secondary importance, and so individuals have to be sensitive to whether they’re actually giving up expected returns by jumping onto the floating-rate bandwagon.

The biggest benefit, though, is that floating-rate bond funds likely won’t see the same capital losses that their traditional fixed-rate bond-fund colleagues will suffer when interest rates rise. Already, even with just modest rate increases recently, some fixed-rate bond funds have seen negative total returns so far in 2013.

Don’t sink
Floating-rate bonds are worth a closer look, but like many novel investment ideas, their results may fall short of their promise. Many investors will find that they’d be better off buying fixed-rate bonds to hold until maturity rather than accepting the uncertainty of floating-rate notes.

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The article Why Corporate America Thinks Rates Will Never Rise originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Walt Disney (NYSE:DIS). The Motley Fool owns shares of IBM and Walt Disney.

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