Conclusion
Given the longer-duration aspect of TIPS, there is higher sensitivity to increases in longer-term interest rates, a trend that does not affect the UST FRN market. The graph highlights how the WisdomTree Floating Rate Treasury Fund (USFR), which is based on UST FRNs, outperformed the Bloomberg Barclays U.S. Treasury Inflation Notes Index by 342 bps since the low in the UST 10-Year yield was reached on July 8, 2016. This period also included seven Fed rate hikes, underscoring the potential advantages of implementing a USFR strategy, especially considering the Fed outlook still looks for additional rate hikes later this year and into 2019.
Unless otherwise noted, data source is Bloomberg, as of September 20, 2018.
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Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Securities with floating rates can be less sensitive to interest rate changes than securities with fixed interest rates, but may decline in value. The issuance of floating rate notes by the U.S. Treasury is new and the amount of supply will be limited. Fixed income securities will normally decline in value as interest rates rise. The value of an investment in the Fund may change quickly and without warning in response to issuer or counterparty defaults and changes in the credit ratings of the Fund’s portfolio investments. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.