Lyxor cross-lists floating rate bond ETF on SIX

Dec 5th, 2017 | By | Category: Fixed Income

Lyxor has listed the Lyxor $ Floating Rate Note CHF Monthly Hedged UCITS ETF (FLOTH SW) on SIX Swiss Exchange. The fund provides exposure to dollar-denominated corporate debt that is protected from rising interest rates and hedges currency exposure between the US dollar and the Swiss franc.

Francois Millet, head of product line management, ETFs & indexing, at Lyxor.

Francois Millet, head of product line management, ETFs & indexing, at Lyxor.

FLOTH tracks the Bloomberg Barclays US Corporate FRN 2-7 Yr Index. The index tracks dollar-denominated corporate floating rate bonds issued by US and non-US companies. Securities must be investment-grade rated, have over $500m in notional outstanding, and have a maturity between two and seven years. Bonds issued more than two years ago or from emerging market companies are excluded from the index universe.

Floating rate bonds adjust their coupon rates in line with changes in the London Interbank Offered Rate (LIBOR). As rates rise, the bonds’ yields are protected.

Floating rate bonds have proved a popular investment in 2017 as investors brace themselves for a period of rising interest rates.

FLOTH trades in Swiss francs but uses currency hedging to mitigate the adverse effects of currency movements between the US dollar and the Swiss franc from affecting performance. Its total expense ratio (TER) is 0.15%.

Lyxor first rolled out the Lyxor $ Floating Rate Note UCITS ETF (BUOY LN), which trades in US dollars, on London Stock Exchange (LSE) in May of this year. BUOY costs just 0.10%.

Speaking at the fund’s initial launch, Francois Millet, head of product line management, ETFs & indexing, at Lyxor said: “For us, it was important to create a simple, low-cost way for investors to access the US dollar-denominated floating rate note market. As a Luxembourg SICAV, this ETF will be attractive to investors right across Europe.”

Since then, the firm has launched a GBP-denominated share class (SWIM LN) and a GBP-denominated currency-hedged share class (SWIH LN) on LSE, as well as EUR-denominated share class with currency hedging (FLOTH IM) on Borsa Italiana.

The US Federal Reserve is widely expected to increase interest rates again when they meet later in the month on 13 December. Probabilities derived from the Federal Funds Futures market imply a 90.2% probability that the US base rate will be increased to 1.25-1.50%, as of 4 December 2017. Two increases have already occurred thus far in 2017 in March and June.

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