“A floating rate note has an ultra-short duration and very low sensitivity to effective rates because when rates rise, the coupon of the floating rate note adjusts accordingly. The price of the note typically remains unchanged as the floating mechanism allows it to adjust to the market changes in yield without a decrease in price,” according to SSgA.
In exchange for lower rate risk, investors do trade off some yield with a fund such as FLRN. The ETF has a 30-day SEC yield of 1.86%, or about 100 basis points below 10-year Treasuries. Data suggest fixed income investors are flocking to short-term bond funds.
“So far this year, ultra-short focused fixed income ETFs have seen $5.9 billion of inflows and short-term funds have added $5 billion,” according to SSgA.
For more on mixed income ETFs, visit our Fixed Income category.