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WisdomTree Launches US Floating Rate Treasury ETF

Tuesday 26th March '19

WisdomTree, the exchange traded fund ("ETF") and exchange traded product ("ETP") sponsor, today announced the launch of the WisdomTree USD Floating Rate Treasury Bond UCITS ETF (USFR) on the London Stock Exchange. USFR seeks to provide exposure to floating rate notes issued by the United States (US) Treasury.

The US treasury began offering Floating Rate Notes (FRNs) in 2014 and now, for the first time in Europe, investors can access these notes via an ETF.

US Treasury FRNs make payments to bondholders each quarter with the coupon amount linked to movements in short term interest rates. As investors look for ways to reduce the overall interest rate risk exposure within their fixed income portfolios, US FRNs can help bridge an important gap between short-maturity Treasury bills that do not offer coupon payments and longer-maturity, fixed rate Treasury bonds.

Christopher Gannatti, WisdomTree Head of Research commented, “For investors who are looking for another government bond instrument to replace some of the low yield exposures present in many developed market treasuries, US Treasury FRNs could provide a yield enhancement, especially given the flatness of the US yield curve.”

Lidia Treiber, Fixed Income Research at WisdomTree, added, “US Treasury floating rate notes typically have a lower duration profile than floating rate corporate bonds (corporate FRNs) and can be used to help reduce corporate credit exposure within investor portfolios. Interest payments on corporate FRNs are exposed to corporate credit risk or risk that the borrower will default on its obligation.”

USFR: Under the Hood

  • Exposure: Invests in US Treasury Floating Rate Notes
  • Daily rate reset: The coupon rate is reset daily in reference to the highest accepted discount rate of the most recent 13-week Treasury Bill auction, plus or minus a fixed spread determined at the securities’ initial issuance.
  • Interest: Since auctions for new 13-week Treasury Bills occur once a week, the coupon rate effectively changes weekly. Interest is accrued daily and distributed quarterly.
  • Maturity: They are backed by the full faith and credit of the US government and have a 2-year final maturity.

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