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Due to their floating rate component, bank loans are seen as an attractive alternative to traditional high-yield corporate bonds in a rising rate environment. Bank loan securities allow their interest rate to shift, or float, along with the rest of the market, whereas a fixed interest rate stays constant until maturity.
“Float on the short end of the curve to pick up rising yields with minimal duration (0.11 years), while taking on some credit risk to boost yields on the long end but with less duration than long-term Treasuries (13.6 vs. 17.2 years),” said SSgA.
A floating rates corporates strategy offers investors a higher yield spread over Treasuries with a lower duration than various Treasury only strategies.
For more information on the fixed-income market, visit our bond ETFs category.