The recent demand for high-yield, junk bonds may have also contributed to inflows in the senior bank loan ETF. BKLN attracted $23.9 million in inflows over the past week.
Analysts believe that the Fed could raise its target rate as soon as September if the economy picks up speed. Fed Chairwoman Janet Yellen has recently stated that a rate hike is likely later this year, but some fixed-income investors believe any rate hike will be small.
Investors interested in senior bank loan ETFs for a rising rate environment may also take a look at the Highland/iBoxx Senior Loan ETF (NYSEArca: SNLN) and actively managed SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN).
Lynagh argues that if the Fed were to aggressively hike rates, a 40% to 50% allocation to floating-rate debt would seem reasonable.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.