A structured security (a floater or floating rate note– FRN) which enables investors to benefit from falling short-term interest rates. With a bull floater, the coupon increases as yields fall. Interest payments, based on a specified coupon rate, increase when the reference rate falls and decrease in the opposite scenario. The interest rate is periodically readjusted at a multiple of the difference between a chosen floating reference rate and a predetermined fixed rate (such as a swap rate). And hence, the floating rate leg rises or falls accordingly by a multiple of the change in the floating reference.

For example, a note issuer pays one reference rate, being his cost of funds. The other rate is arrived at by deducting the former from the coupon rate. The issuer, keen to keep the cost of funds in check by taming any increase in the two reference rates above the coupon rate, may buy in out-of-the-money cap whose strike price is set at the fixed rate. With a bull floater, therefore, an issuer can lower its net cost of funds with respect to more traditional means of raising capital.