… rising interest rates?
Subordinated bonds with fixed interest rate fall when interest rates are rising. If you sell this bond prior to maturity, you may record a loss.
Subordinated bonds with floating interest rate, on the other hand, benefit from rising interest rates. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the EURIBOR, an increase in the level of interest rates also means a rising interest rate for the bond. The price of the bond tends to oscillate around face value.
… stable interest rates?
In the case of stable interest rates, neither the price nor the coupon of the subordinated bond changes (if other criteria, e.g. the rating of the issuer, stays unchanged).
… falling interest rates?
Subordinated bonds with fixed interest rate increase when interest rates are falling. If you sell this bond prior to maturity, you may record a profit.
Falling interest rates, on the other hand, have a negative impact on subordinated bonds with floating interest rate. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the EURIBOR, a decrease in the level of interest rates also means a falling interest rate for the bond. The price of the bond tends to oscillate around face value.