In investment grade, fixed coupon corporate bonds, investors are exposed to two main types of sensitivity.

Rates duration and credit duration. Rates duration refers to the bonds sensitivity to changes in the risk-free interest rate, such as government bond yields.

If the risk-free rate changes, the corporate bond's price will adjust accordingly, even if the issuer's credit quality remains unchanged.

Credit duration, on the other hand, captures the bond's sensitivity to changes in the credit spread, which reflects the issuer's perceived credit risk.

If the issuer's credit worthiness changes, the credit spread may widen or tighten impacting the bonds price.

For fixed coupon bonds, these two durations align.

If the yield to maturity increases by one basis point, the price impact will be the same, whether it's driven by a rise in government bond yields, or a widening of credit spreads.

However, this dynamic changes with floating rate notes or FRNs.

FRNs typically have low rates duration because their benchmark rate like sofa resets periodically, so the bonds yield adjusts to reflect current market rates.

As a result, FRNs are less sensitive to interest rate fluctuations as the bonds coupon payments adapt to the new rate environment.

However, the credit spread component in an FRN is fixed for the life of the bond, which means it can be highly sensitive to changes in credit spreads.

Imagine you've invested in a 30 year sofa linked FRN.

If sofa rises or falls, the bond's price remains relatively stable because the coupon will adjust with each reset.

But if the issuers credit spread widens significantly reflecting increased credit risk, the bonds price will respond.

As the fixed credit spread no longer provides adequate compensation for the perceived risk, investors would likely demand a discount on the price of the FRN, making it more sensitive to credit spread changes.

So while a 30 year FRN linked to sofa has low rates duration, it has significant credit duration.

This structure makes FRNs appealing to investors focused on credit risk exposure as they primarily respond to changes in the credit worthiness rather than interest rate movements.

However, FRNs may not always be available for every investment need.

In such cases, investors may opt for fixed coupon bonds and manage their interest rate risk exposure separately through hedging.