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WisdomTree, a leading provider of exchange-traded funds, has announced the launch of the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), an ETF providing exposure to floating rate notes issued by the US Treasury.
Floating rate notes, or FRNs, are debt securities whose coupon payments are reset periodically and pay a predetermined spread over a short-term interest rate.
The new fund has been listed on the NYSE Arca and is linked to the Bloomberg US Treasury Floating Rate Bond Index, a rules-based, market value-weighted index engineered to measure the performance of floating rate US Treasury bonds.
The US Treasury completed its first floating rate Treasury auction on January 29, 2014, issuing $15 billion of a note with a two-year stated maturity. The notes pay a quarterly coupon tied to the highest accepted discount rate of the most recent 13-week Treasury bill auction. The coupon of the note will update with each Monday auction of a 13-week Treasury bill, with the reset being effective the next day.
As investors continue to assess their options for managing interest rate risk, floating rate Treasury notes offer investors a useful new tool to bridge the gap between short-maturity Treasury bills and longer-maturity, fixed rate Treasury bonds.
Rick Harper, WisdomTree’s head of currency and fixed income, said: “With interest rate risk on the minds of many investors in 2014, we believe that floating-rate Treasury securities provide another tool for investors to manage interest rate risk while generating income payments that are backed by the full faith and credit of the US government.”
Bradley Krom, an associate with the currency and fixed income team at WisdomTree, added: “We believe that floating rate Treasury securities represent an effective way for investors to help reduce their exposure to rising interest rates while generating income payments that are backed by the full faith and credit of the US government. Although returns in many markets such as bank loans have been impressive thus far, these markets may pose several risks that investors must thoroughly consider.”
The fund has a net expense ratio of 0.15%.