How can retail investors invest in floating rate notes, or FRNs?


Nov. 20 2020, Updated 11:45 a.m. ET

Investor interest

The Treasury’s newest issuance of floating rate notes, or FRNs, on January 29, commanded immense investor interest. The $15 billion issue received bids for 5.67 times the issue amount. This was the Treasury’s first new type of security issuance since 1997, when it introduced Treasury inflation-protected securities back in 1997.

Tuesday, February 4, WisdomTree (an exchange-traded fund, or ETF, sponsor and asset manager) announced the launch of the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) on the NYSE Arca. With a net expense ratio of 0.15%, the ETF will provide exposure to investors to new asset class.

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“U.S. floating-rate debt can help bridge an important gap between short-maturity Treasury bills and longer-maturity, fixed rate Treasury bonds. As another means for the Treasury to fulfill growing investor demand and diversify its sources of funding, we believe that issuance and investor use of floating rate Treasuries are poised to grow over the next several years,” said Rick Harper, WisdomTree’s Head of Currency and Fixed Income.

Investment options for retail investors seeking exposure to Leveraged Loan ETFs SPDR® Blackstone / GSO Senior Loan ETF (SRLN) seeks to outperform the Markit iBoxx USD Liquid Leveraged Loan Index (the “Primary Index”) and the S&P/LSTA U.S. Leveraged Loan 100 Index (the “Secondary Index”). The ETF has a gross expense ratio of 0.8%. Highland iBoxx Senior Loan ETF (SNLN) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Markit iBoxx Liquid Leveraged Loan Index. The ETF’s net expense ratio is 0.55%.

The Powershares Senior Loan Portfolio (BKLN) seeks to replicate the S&P/LSTA U.S. Leveraged Loan 100 Index, a benchmark designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads, and interest payments. HJ Heinz (HNZ), which was recently taken over by Berkshire Hathaway (BRK-B), is the largest issuer in the index, yielding 3.25%. The ETF’s expense ratio is 0.66%.

To learn more about fixed income investments, see the Market Realist series Huge weekly outflow: High yield bond market outlook.


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