FOMC Watch: Float Like A Butterfly, Don’t Get Stung By A Bee

UST FRNs vs. CDs

Some market participants may believe that certificates of deposit, or CDs, are a better solution. However, there are some important items to consider. First up, UST FRNs are backed by the full faith and credit of the U.S. government. CDs are insured by the Federal Deposit Insurance Corporation (FDIC), but only up to $250,000 per person, per bank, per ownership category.

Let’s look at it from an income perspective. The WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), which seeks to track the price and yield performance, before fees and expenses, of the Bloomberg U.S. Treasury Floating Rate Bond Index, posts an average yield to maturity of 1.81% as of this writing. According to Bankrate, formerly known as Bank Rate Monitor and a provider of various interest rate data, the top five rates for six-month CDs post an average of 1.86%, while the national average for a one-year CD is 2.10%. 

The bottom-line message is that there is only a marginal increase in yield, but perhaps more importantly, investors would have to lock up these CD rates for a six-month and/or one-year period. Meanwhile, the yield for a UST FRN can be reset weekly. When one considers the fact that the Fed may be raising rates two if not three more times between now and year-end, USFR offers investors a better opportunity for more timely yield enhancement.

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Disclaimer: Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. U.S. investors only: To obtain a prospectus containing this ...

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