Is the Fed actually done with rate hikes? The answer is far from clear. While the Fed did pause rate hikes in September, officials at the central bank have been signaling further rates may be possible for months. With the Fed targeting 2% but running at a 3.7% inflation rate as of August, investors should be prepared for more hikes. That may add to the case for a Treasury ETF that adapts to interest rate movement, like the WisdomTree Floating Rate Treasury Fund (USFR).
Markets have been mulling the Fed’s rate-hike thinking for months, but even this last week, a regional Federal Reserve Bank head had to restate the case. Should inflation stabilize around 3% — still some way from 3.7% — the Fed may have to look at more hikes, per Minneapolis Fed President Neel Kashkari.
See more: “As Fed Rate Pause Previews Hikes, Eye USFR”
Kashkari shared that perspective Wednesday, September 27, suggesting that hikes remain top of mind right now at the central bank. Separate analysis from some asset managers also estimated as many as three more hikes. Taken together, those factors could prove tipping points for investors taking a look at their fixed income allocations. While fixed income has indeed returned this year, making corporate and high yield bonds attractive, it’s Treasuries that may merit some of the most attention.
USFR’s Treasury ETF Approach
That’s why investors may want to consider a Treasury ETF like USFR. The fund offers exposure to floating rate notes (FRNs), the most recent product launched by the Treasury. FRNs see their rates float in response to the overall U.S. interest rate, becoming more popular as rates rise.
USFR itself is yielding a 5.6% average yield to maturity, tracking the Bloomberg U.S. Treasury Floating Rate Bond Index. It has returned 3.9% YTD for a 15 basis point (bps) fee. Overall, the Treasury ETF may be one to watch as it offers solid yield that responds well to rate hikes.
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