NEW YORK (TheStreet) -- One of the most successful niches in the sector of fixed-income exchange-traded funds has been anything with floating-rate debt.
As historically low interest rates rise to more normal levels, bond prices, especially for longer-dated debt, will get punished, and thus the leanings toward floating rates and shorter terms.
Coming into 2014, there were nine floating rate ETFs tracking various parts of the corporate bond market, and according to ETF.com, the combined assets in this niche is almost $12 billion, led by the PowerShares Senior Loan ETF (BKLN) with $6 billion in assets and the iShares Floating Rate Bond ETF (FLOT) with $3 billion in assets.
Perhaps sensing the growing demand for floating-rate debt and maybe sensing that demand for plain-vanilla debt might decrease when rates go up, the Treasury began to offer its own floating-rate debt last week when it auctioned $15 billion of two-year floating-rate notes.
For now, there will be just two-year notes, auctioned monthly, and according to the Treasury Direct website, they will pay an interest rate based on a spread above the most recent 13-week Treasury bill auction. The interest will accrue daily and the rate will be reset quarterly.
Although the interest rate for the two-year floaters will be very low, these stand to be very popular because they remove the most visible current risk faced by bond investors -- interest rate risk.
Not surprisingly, there are now two new ETFs offering access: WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) and the iShares Treasury Floating Rate Bond ETF (TFLO), and interestingly both funds have the same 0.15% expense ratio.