“The simple reason that we prefer floating rate notes versus rolling three-month t-bills over the next two years is that we want to receive higher yields as the Fed hikes rates,” said WisdomTree. “As short-term interest rates rise, the yield on Treasury floaters will reset each week at progressively higher rates. By contrast, if investors wanted to roll three-month t-bills over the next two years, they would only able to boost the yield of their holdings every three months (e.g., four times per year).”
Looking ahead, the floating rate notes will generate more interest if Treasury prices fall and yields rise further, which should play out if the Fed continues on its interest rate normalization schedule.
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