Long Inverse Floating Exempt Receipt (LIFER)

What Is a Long Inverse Floating Exempt Receipt (LIFER)?

A Long Inverse Floating Debt Receipt (LIFER) is a floating rate debt security traded among qualified institutional buyers (QIBs) and initially made by the German bank Deutsche Bank.

A long inverse floating debt receipt pays a yield equivalent to a fixed base interest rate minus the floating rate of a benchmark (like LIBOR+). Accordingly, the interest rate paid moves inversely to the bearing of the variable rate itself. Owners of a LIFER likewise receive periodic interest payments, which will change the other way of the benchmark rate.

Seeing Long Inverse Floating Exempt Receipts (LIFERs)

Long Inverse Floating Debt Receipts (LIFERs) frequently fall under municipal structured finance. This means that the underlying cash flows for the receipts are given by municipal specialists, like air terminals, streets, and schools. These securities are generally exempt from registration with the Securities and Exchange Commission (SEC) under a provision in the Securities Act of 1933 known as Rule 144A. Bearer-bond forms (that offer no coupon) are likewise considered trade in the U.S. under Regulation S.

LIFERs are viewed as more unpredictable than vanilla floating-rate notes, as the fixed rate of the contract will be set higher than the commonplace scopes of the (variable) benchmark, and frequently by a larger margin than the benchmark is from zero. Their complexity and increased risks are the reason they are just traded among qualified institutional purchasers (QIBs) on the assumption of there being a sophisticated investor who grasps the subtleties and the risks of the product.

Utilizing an Inverse Floater

A LIFER is an illustration of a more extensive category of financial contract known as a inverse (reverse) floater. As the name recommends, its value moves inversely with interest rates on a variable or adjustable basis.

Someone could wish to purchase an inverse floater assuming they accept that interest rates will diminish from now on, and at a quicker rate than expected. One more method for utilizing an inverse floater is on the off chance that one anticipates that rates should continue as before over a prolonged period, holding a product, for example, a LIFER would normally outperform the standard (non-inverse) variant of the floating note.

Since inverse floaters use leverage, they can carry a somewhat large amount of interest rate risk. In the event that close term interest rates fall, the drop in price on an inverse floater, along with its yield, will be amplified thus. At the same time, assuming that rates rise an inverse floater will be more productive than unleveraged rates instruments. Thus, an inverse floater conveys a higher degree of price volatility.

Features

• A long inverse floating exempt receipt (LIFER) is a type of inverse floater made by Deutsche Bank.
• LIFERs are simply accessible to sophisticate institutional investors.
• An inverse floater is a debt instrument whose coupon rate moves the other way of its benchmark interest rate.