Is it possible for a FRN to both decrease in price and yield at the same time?

CFA Level III Fixed Income
#1

Hi all,

I have a security, a floating rate note priced at USD 1M Libor + 200bps; which over a time period say 20/01/20 to 04/05/20, decreases in price from 100.9 to 96.0 alongside a decrease in yield from 3.42% to 3.15%. Why could this be? I have also confirmed that these figures are accurate.

Any response much appreciated.

#2

It could be that investors believe that the risk of the FRN has increased, so its spread above LIBOR has increased.

That seems to me to be the most likely explanation.

#3

Thanks for your response - are you saying that the effect of the decrease is LIBOR on yield is greater than the effect of the decrease in price of the bond on the yield?

Is this still the case if there is an index floor of 0?

#4

My pleasure.

I’m not sure that I follow your question.

I’m saying that, for example, LIBOR might decrease100 bps and the bond’s (credit) spread above LIBOR might increase 50 bps.