Navigating Rate Hikes: The Case for Floating Rate Treasury ETFs

iShares Treasury Floating Rate Bond ETF US46434V8607

For investors concerned about rising interest rates, finding a haven that mitigates interest rate risk is paramount. One such vehicle is the iShares Treasury Floating Rate Bond ETF (TFLO), which provides targeted exposure to U.S. government-issued floating rate notes. This analysis examines its strategy and how it stacks up against comparable funds in the marketplace.

The ETF seeks to track the investment results of the Bloomberg U.S. Treasury Floating Rate Index. Its portfolio is composed exclusively of U.S. Treasury Floating Rate Notes (FRNs), obligations backed by the full faith and credit of the U.S. government. A key characteristic of these securities is their regular coupon adjustment, which frequently occurs on a weekly basis, aligning income payments with prevailing short-term interest rates. This feature is particularly advantageous in a rising rate environment. Furthermore, the fund maintains an exceptionally low interest rate sensitivity, evidenced by an average effective duration of just 0.94 years as of January 22, 2026.

Competitive Landscape and Performance Metrics

When evaluating performance, TFLO has demonstrated consistency. For the year 2025, the fund delivered a total return of 4.26%. More recently, its market price had increased by 0.22% year-to-date as of January 20, 2026.

The most direct competitor is the WisdomTree Floating Rate Treasury Fund (USFR). It follows the same benchmark index and charges an identical expense ratio of 0.15%. However, USFR commands a significantly larger asset base, with approximately $16.2 billion in assets under management compared to TFLO's $6.4 billion. Despite this size disparity, the performance of the two ETFs has been virtually indistinguishable.

Investors considering a different approach might look at the iShares Floating Rate Bond ETF (FLOT). This fund employs a broader mandate, incorporating investment-grade corporate floating rate bonds alongside government debt. While this strategy offers the potential for higher yield, it also introduces additional credit risk not present in a pure-Treasury portfolio like TFLO.

Outlook and Investor Considerations

The appeal of TFLO and similar funds is intrinsically linked to the trajectory of short-term interest rates. The current climate of rising yields on U.S. Treasuries highlights a dynamic market where floating rate securities can showcase their defensive characteristics. For capital preservationists seeking to insulate their portfolios from interest rate volatility while relying on the premier credit quality of the U.S. Treasury, TFLO presents a straightforward, low-cost solution. The fund’s monthly portfolio rebalancing ensures ongoing alignment with prevailing market conditions.