Fixed or floating bond interest: payments, prices and risk

Coupon predictability versus price risk

Fixed interest determines future interest under a known rate and schedule. Floating interest requires setting the rate again under the issue formula. Neither mechanism alone establishes issuer repayment capacity or the outcome after tax and inflation.

For exchange-traded bonds, a fixed coupon does not mean a fixed price. When market-required yield rises, the price of unchanged future payments generally falls; when required yield falls, price can rise. Maturity, cash-flow structure and credit risk matter. Selling before redemption can realise a price gain or loss.

Floating coupons adjust future payments to a benchmark, which can reduce price sensitivity to rate changes alone. Price risk remains: markets can reassess repayment, demand a larger premium or offer weaker liquidity. Contractual margin is not the same as the premium currently demanded by buyers.

Two rate-change scenarios

Hypothetical model with two full annual periods: PLN 10,000 nominal value, purchased at par and paid on time. Ignore tax, commission and reinvestment. An 8% fixed coupon pays PLN 800 annually, or PLN 1,600 interest over two years. A floating coupon with 3 pp margin and an assumed benchmark of 6%, then 4%, pays PLN 900 and PLN 700, also PLN 1,600. Principal redemption is a separate cash flow.

If the benchmark instead rises from 6% to 8%, this model’s floating coupon pays PLN 900 and PLN 1,100, totalling PLN 2,000 interest. This follows an assumed path, not a forecast or universal floating-rate advantage. Another path or purchase price can change the comparison.

Retail bonds have different exit rules

Polish retail Treasury comparisons also depend on product rules. TOS use fixed interest; ROR and DOR reference the NBP reference rate; COI and EDO have an inflation-based formula after the first year. WIBOR and CPI inflation are different benchmarks. Check observation timing, margin and payout or compounding mechanics.

For these retail savings bonds, early exit normally uses early-redemption rules in the issue letter. It should not be described as an exchange sale at a changing quote. Conversely, an exchange-traded Treasury bond can have a market price and require a buyer.

How to compare?

Before comparing, identify issuer and currency, when funds are needed, payment dates, rate-setting rules, costs and exit route. Calculate several benchmark paths instead of one. The floating-coupon guide explains period calculations; the after-tax and inflation guide connects interest to the investor’s outcome.