FRNs: Their Time In The Spotlight Is About To End

Summary

  • FRNs, 2-year Treasury investments, have been in the news recently because their yields topped all Treasury investments with terms up to 10 years.
  • FRNs are attractive during a time of rising interest rates, especially for cash you know you will be holding for two years.
  • But during a period of declining rates – which could be coming – shorter-term investments give you more flexibility, with just a small yield penalty.

On May 31, a typical FRN was yielding about 2.4% while the 10-year Treasury yield had dropped to 2.14%. That means FRNs currently have about a 25 basis-point advantage over a 10-year Treasury. That’s a pretty remarkable example of yield inversion, because the FRN’s base interest rate matches the current 13-week Treasury.

Read my full analysis on SeekingAlpha.com

About Tipswatch

Author of Tipswatch.com blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
This entry was posted in Investing in TIPS. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s