What type of bond has a coupon rate linked to a reference rate such as Libor?

A floating-rate bond is characterized by having a coupon rate that is not fixed but instead varies over time, typically linked to a reference interest rate such as LIBOR (London Interbank Offered Rate). This means that the interest payments made to bondholders will change as the reference rate changes, providing some protection against interest rate fluctuations.

Investors in floating-rate bonds benefit during periods of rising interest rates since the coupon payments will increase, leading to potentially higher returns compared to fixed-rate bonds, which maintain the same coupon payment regardless of market interest rates. This adaptability makes floating-rate bonds particularly attractive in environments where interest rates are expected to rise.

Other types of bonds mentioned do not feature this adjustable coupon structure. Fixed-rate bonds pay a consistent interest rate throughout the life of the bond, while zero-coupon bonds offer no periodic interest payments but are sold at a discount and return the face value at maturity. Convertible bonds, while having features that may make them appealing, are essentially fixed-rate bonds that can be converted into equity under specific conditions. Thus, the dynamic nature of variable coupon payments linked to benchmark rates distinctly defines floating-rate bonds.