USFR: What Is Next For Floating Rate Treasuries (Rating Downgrade)

seekingalpha08-15

USFR is a floating rate treasury fund that has outperformed in rising rate environments but will see decreasing yields with Fed cuts.The market is pricing in a September 2024 cut, making USFR a hold ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2459710714?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/121687066/image_121687066.jpg","is_english":true,"pubTime":"2024-08-15 23:30","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2459710714","market":"us","top_or_hot":-1,"title":"USFR: What Is Next For Floating Rate Treasuries (Rating Downgrade)","media":"seekingalpha","content":"<div>\n<p>USFR is a floating rate treasury fund that has outperformed in rising rate environments but will see decreasing yields with Fed cuts.The market is pricing in a September 2024 cut, making USFR a hold ...</p>\n\n<a href=\"https://seekingalpha.com/article/4714850-usfr-what-is-next-for-floating-rate-treasuries-rating-downgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>USFR: What Is Next For Floating Rate Treasuries (Rating Downgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nUSFR: What Is Next For Floating Rate Treasuries (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-15 23:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4714850-usfr-what-is-next-for-floating-rate-treasuries-rating-downgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>USFR is a floating rate treasury fund that has outperformed in rising rate environments but will see decreasing yields with Fed cuts.The market is pricing in a September 2024 cut, making USFR a hold ...</p>\n\n<a href=\"https://seekingalpha.com/article/4714850-usfr-what-is-next-for-floating-rate-treasuries-rating-downgrade\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"USFR","symbol_name":"WisdomTree Bloomberg Floating Rate Treasury Fund","start_time":0,"source_url":"https://seekingalpha.com/article/4714850-usfr-what-is-next-for-floating-rate-treasuries-rating-downgrade","article_id":"2459710714","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/121687066/image_121687066.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2459710714","pubTimestamp":1723735814,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"USFR is a floating rate treasury fund that has outperformed in rising rate environments but will see decreasing yields with Fed cuts.The market is pricing in a September 2024 cut, making USFR a hold g","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"USFR":"WisdomTree Bloomberg Floating Rate Treasury Fund"},"translate_title":"USFR：浮动利率国债的下一步是什么（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"USFR":1},"content_text":"USFR is a floating rate treasury fund that has outperformed in rising rate environments but will see decreasing yields with Fed cuts.The market is pricing in a September 2024 cut, making USFR a hold going forward with a stable price but decreasing yield.Investors seeking high dividend yields may consider low volatility treasury funds with higher duration profiles as an alternative to USFR.USFR is one of the few funds offering investors exposure to Treasury Floating Rate Notes.Montes-Bradley Thesis The WisdomTree Floating Rate Treasury Fund ETF (NYSEARCA:USFR) is a name we have covered in the past, with our last article assigning the name a 'Strong Buy' at the beginning of the year. In that write-up, we highlighted for investors why the fundamentals of the economy did not warrant the six rate cuts for 2024 the market was pricing in, thus making floating rate treasuries appealing long term. In today's article, we are going to explore the latest economic data, visit the market pricing in terms of rate cuts for the rest of the year, and highlight why a September 2024 cut is a 'done deal', thus making USFR a hold going forward. The fund aggregates floating rate Treasuries USFR addresses a niche of the Treasuries market, namely floating rate treasuries: Floating Rate Notes (FRNs) are relatively short-term investments that: mature in two years, pay interest four times each year and have an interest rate that may change or \"float\" over time. FRNs reset based on 13-week Treasury bills and thus have a negligible duration profile. If we look at the current fund holdings, the individual FRNs are as follows: Holdings (Morningstar) Via this construct, the fund has managed to capture all the upside in a rising rates environment, with the underlying FRNs re-setting often enough to capture the ever-increasing rates. Conversely, as the Fed cuts, the set-up will work against the fund, with rate cuts being almost immediately priced in via lower yields. In the past years, when we were experiencing a monetary tightening cycle, the fund outperformed many of its peers: Data by YCharts When we compare USFR to the iShares 0-3 Month Treasury Bond ETF (SGOV) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), we will notice that USFR has outperformed both as rates rose. The analysis is run using the total return feature in order to incorporate the yield differentials. The Fed is set to cut in September 2024 While the year opened with six rate cuts priced in, the earliest one slated for March 2024, things did not pan out as expected. Inflation data kept coming in hot, with a healthy job market and a strong economy. Robust data thus forced a massive roll-back of Fed cuts for the year, with the futures market pricing in only one cut for 2024 at a certain point in April. Things have now changed, with lower inflation figures coming through both PPI and CPI figures in the past weeks, which has prompted not only a severe re-pricing of rate cuts for 2024 but making a September 2024 cut a 'done deal': Rate Cut Probabilities (CME) If an informed reader looks at the above table for the row pertaining to 9/18/2024, they can notice that the market is pricing either a 25 bps or higher cut for September. There are no percentages associated with probabilities for rates to stay at the current levels. We believe both the Fed and the market are signaling a September cut, with the following next steps being very much data dependent. What happens next with USFR Given its composition, USFR is a fund that provides dividends, not capital gains: Data by YCharts If we look at the fund's price action in the past decade, we can notice it has barely moved, despite navigating various monetary cycles and regimes. The price range is a -0.8% to +0.82% one. That should highlight to investors that, price-wise, the fund will remain the same going forward, irrespective of how low Fed Funds go. The move lower in risk-free rates will translate into a lower dividend yield for the name. The ETF has a 30-day SEC yield of 5.3% now, and any decrease in Fed Funds will see an equivalent decrease in the fund's yield. If the Fed cuts by 25 bps in September 2024, expect USFR to post a 5.05% 30-day SEC yield the week after. Each and every Fed cut will result in a lower distribution for the ETF going forward, with virtually no lag. USFR captures the front end of the curve and is a very pure expression of Fed Funds via its build. Holders therefore should expect lower yields going forward as the Fed eases monetary policy. The ETF should thus have a stable price going forward, but also an ever-decreasing 30-day SEC yield that will match one for one each Fed cut. Investors looking to maintain a high dividend yield passed on via a total return feature can start looking at low volatility treasury funds with a higher duration profile. We have covered a number of them in the past, and readers can reference our articles:  iShares 1-3 Year Treasury Bond ETF IEI: Appealing Fund With 5-Year Yields Above 4.2%  Conclusion  USFR is an exchange-traded fund. The vehicle invests in floating rate Treasuries exclusively and has been a beneficiary of higher risk-free rates. The fund has generated a very robust total return in the past three years, passing on to investors higher risk-free rates. As the cycle turns, USFR will generate less of a return. The fund will have a stable price going forward, similar to what we have seen in the past decade, but will see its dividend yield shrink. The ETF will see its yield reduced one for one as the Fed cuts, with the market pricing a September 2024 cut as a 'done deal'. We are moving the vehicle from 'Strong Buy' to 'Hold', given the attractiveness of longer duration treasury funds nowadays, however, please note the ETF is still a core cash parking vehicle and represents a cornerstone of portfolio construction.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2459710714"}