The Treasury recently issued its first floating-rate bonds, with variable interest rates tied to short-term rates. Despite interest from institutional investors, though, floating-rate Treasuries might not meet your needs as an income investment.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about floating-rate Treasury bonds. Dan notes that the first auction went well for the Treasury, but that yields of just 0.045 percentage points above three-month Treasury bill rates won't give investors much return. In fact, with such low yields, the new iShares Treasury Floating-Rate ETF (TFLO) would have trouble paying its 0.15% management fee if iShares hadn't taken a voluntary waiver of those fees. The true test for this and the broader-based iShares Floating-Rate Bond ETF (NYSEMKT:FLOT) will come when short-term rates rise, but for now, low yields are the price you pay for some protection from interest rate increases in the future.
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.