A bond that pays interest only if the floating interest rate (such as LIBOR) or aninterest rate option underlying a bond stays within a prespecified range. This instrument actually contains an embedded option which is sold by the bond buyer to the issuing firm. The option allows the bond buyer to gain extra yield over a bond. When volatility of interest rates, expected to be low, turns out to be really low, yields on bonds with an embedded option would be more than that of a regular bond, and therefore such a bond would help the holder, taking a view on volatility, to make increase the bond yield.

The range accrual bond is also known as a corridor accrual bond, corridor bond, index floater, index range note, fairway bond and range (corridor) accrual note.