By VanEck via Iris.xyz

The 10-year U.S. Treasury rate is reaching fresh highs, and the Federal Reserve has a more hawkish outlook than in recent years. In this environment, floating rate notes (FRNs) may be an effective investment grade alternative to other fixed income instruments. They offer a conservative, investment grade income allocation that can complement cash holdings with meaningful yield pickup, as well as a near-zero interest rate duration option within a fixed income portfolio.

Securities linked to Libor1 or interbank rates have benefited investors more recently as interest rates have climbed. Floating rate notes are securities that employ coupon reset mechanisms, which help limit interest rate duration by fluctuating in line with base interest rates. These securities have also helped increase income, particularly as Libor has risen over 100 basis points since last year, mainly influenced by U.S. monetary policy.

Investment Grade Floating Rate Notes

Floating rate notes offer a conservative, investment grade income allocation that can be a complement to cash holdings with meaningful yield pickup, as well as a near-zero interest rate duration option within a fixed income portfolio.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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