Solve Duration Concerns With Floating Rate Notes
Following the recent spike in 30-year Treasury yields, global fixed income investors may be leery of adding duration in bond portfolios. But there are avenues for allaying those concerns while maintaining exposure to the relative steadiness of U.S. government debt.
Floating Rate Notes Are Appealing Fixed Income Ideas
Treasury floating rate notes and ETFs like the WisdomTree Floating Rate Treasury Fund (USFR) are often seen as beneficial tools to fixed income investors when yields on U.S. government debt are rising. Rates have been mostly steady this year.
USFR: A Low-Risk Option
WisdomTree Floating Rate Treasury Fund ETF offers low-risk exposure to floating-rate Treasuries, minimizing interest rate risk and tracking its benchmark closely, minus a small fee drag. The current macro environment supports attractive short-term yields, but anticipated Fed rate cuts by year-end could lower future coupon payments for USFR holders. Strong institutional demand for FRNs and persistent US fiscal deficits may push up yields, potentially benefiting the Fund's future coupons.
VIDEO: ETF of the Week: USFR
On this episode of the “ETF of the Week” podcast, VettaFi's Head of Research Todd Rosenbluth talked about the the WisdomTree Floating Rate Treasury Fund (USFR) with Money Life host Chuck Jaffe. The pair covered a range of topics related to the fund, providing investors with a deeper understanding of the ETF.
ETF of the Week: WisdomTree Floating Rate Treasury Fund (USFR)
VettaFi's Head of Research Todd Rosenbluth discussed the WisdomTree Floating Rate Treasury Fund (USFR) on this week's “ETF of the Week” podcast with Chuck Jaffe of “Money Life.” For more news, information, and strategy, visit the Modern Alpha Channel.
USFR: Unexciting But Useful
The WisdomTree Floating Rate Treasury Fund ETF offers a safe, reliable income stream with minimal capital risk, ideal for portfolio diversification. Floating rate bonds adjust interest rates with market changes, providing slightly higher yields than fixed-rate bonds without significant capital gains or losses. The ETF handles administrative tasks like rollovers and reinvestments, making it a convenient, low-fee option for near-cash savings.
Floating Rate Notes Still Matter
Prior to the Federal Reserve's September interest rate cuts — the central bank's first in four years — floating rate notes and the related exchange traded funds were among investors' best friends in the bond market. The Fed cut rates again last month.
A Passive Income Solution Without the Volatility
By Kevin Flanagan, Head of Fixed Income Strategy Key Takeaways With the 3-Month/10-Year Treasury yield curve inverted, Treasury floating rate notes (FRNs), which are referenced to the weekly 3-Month t-bill auction, offer investors an income advantage without taking on excessive duration risk.
USFR: I Still 'T-Bill And Chill'
The US Equity market is at historical valuation extension in multiples like the S&P 500 to Total Bond Index ratio and in MSCI Cyclical vs MSCI Defensive. At the same time, sentiment indicators are overly bullish, measured by consumer expectations and put call ratios. Even if the Fed cuts another 25 bps in December, USFR is still a safe place to hide out during a much-needed correction in equities.
USFR: Solid Cash ETF, 5.4% Yield
WisdomTree Floating Rate Treasury Fund ETF is a solid cash ETF investing in floating rate treasury notes. These securities are broadly comparable to t-bills, with marginally higher yields. USFR itself yields 5.4%, around 0.2% higher than t-bill ETFs, making the fund a solid cash-alternative ETF.
USFR: What Is Next For Floating Rate Treasuries (Rating Downgrade)
USFR is a floating rate treasury fund that has outperformed in rising rate environments but will see decreasing yields with Fed cuts. The market is pricing in a September 2024 cut, making USFR a hold going forward with a stable price but decreasing yield. Investors seeking high dividend yields may consider low volatility treasury funds with higher duration profiles as an alternative to USFR.
USFR: The Safety Side Of The Barbell
USFR: The Treasury FRNs (floating rate notes) ETF that yields dividend monthly at the rates in line with the target rates (5.25%-5.50%). USFR with stable income at above 5% therefore could nicely be the safety side of the barbell in the portfolio, especially when the cut cycle is prolonged to start later. If we are thinking about a place to park cash, USFR also looks very promising among others with the same nature of ultra-short securities such as CDs.
