giants2010

If you expect interest rates to go down, you had better sell your floating rate bonds fast. Very fast.

If rates go down, you want to increase the duration of your portfolio and floating rate bonds usually have short durations. When rates go down, the interest income will reduce while the price of the bond will remain stable since it will adjust to par value as long as there is no cap or floor on the coupon.

Compare with fixed rate bonds. When interest rates drop, the interest income remain fixed while the price rises. This will improve the total return compared with a floating rate bond.