U.S. Treasury Adds Floating Rate Notes (FRNs) to Fixed Income Mix; Investment Grade Corporate FRNs Continue to Offer Higher Yielding Alternative

Business Wire


With the sale of its first tranche of two-year floating rate notes (FRNs), the U.S. Treasury introduced a new debt instrument into a market already grappling with the Federal Reserve tapering and emerging market volatility. While these new notes may represent an ultimate in a low-risk investment, they offer little in the way of return for yield-hungry investors, according to Fran Rodilosso, fixed income portfolio manager with Market Vectors ETFs.

“These FRNs from the Treasury represent virtually zero duration and virtually zero credit risk, but as a result they also offer virtually zero yield,” said Rodilosso. “They are priced to yield slightly more than the three-month T-Bill, or about 0.1%.” While the Treasury’s FRNs are backed by the full faith and credit of the U.S. government, for investors willing to take on investment grade credit risk, corporate FRNs are a higher yielding alternative. As of January 29th, investment grade corporate FRNs yielded about 0.8%, as measured by the Market Vectors® US Investment Grade Floating Rate Index (MVFLTR), the underlying index of Market Vectors® Investment Grade Floating Rate ETF (FLTR®)1.

Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, and currently oversees Investment Grade Floating Rate ETF (NYSE Arca: FLTR®), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM®), International High Yield Bond ETF (NYSE Arca: IHY®), Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAGTM), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL®), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY), and Renminbi Bond ETF (NYSE Arca: CHLC®). As of December 31, 2013 the total assets for these ETFs amounted to approximately $1.4 billion.

About Market Vectors ETFs

Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totaled $22.1 billion in assets under management, making it the seventh largest ETP family in the U.S. and 10th largest worldwide as of December 31, 2013.

Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes.

Investors cannot invest directly in the Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses.

Market Vectors® US Investment Grade Floating Rate Index comprises U.S. dollar denominated floating rate notes issued by corporate entities or similar commercial entities that are public reporting companies in the U.S. with at least one investment grade rating.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.

The Funds may be subject to credit risk, interest rate risk and a greater risk of loss of income and principal than those holding higher rated securities. As the Funds may invest in securities denominated in foreign currencies and some of the income received by the Funds may be in foreign currency, changes in currency exchange rates may negatively impact the Funds’ returns. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict, and social instability. FLTR Fixed income securities are subject to credit risk and interest rate risk. Floating rate notes are debt issues with variable coupon payments that are pegged to a reference rate plus a spread. Coupons are reset periodically and can rise or fall with changes in the reference rate. The Fund is subject to financial services sector risk, restricted securities risk, credit risk, interest rate risk, and call risk, among others. The Fund will generally invest a significant portion of its assets in the financial services industry. As such, the Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the financial services sector. The Fund will generally invest a portion of its assets in Rule144A securities. Rule 144A securities are restricted securities. They may be less liquid than other investments because, at times, such securities cannot be readily sold in broad public markets and the Fund might be unable to dispose of such securities promptly or at reasonable prices. A restricted security that was liquid at the time of purchase may subsequently become illiquid. The Fund may loan its securities, which may subject it to additional credit and counterparty risk. THHY is subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities, as well as concentration risk; credit risk; hedging risk; interest rate risk; and short sale risk. Investors should be willing to accept a high degree of volatility and the potential of significant loss. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. For a more complete description of these and other risks, please refer to the Funds’ prospectus and summary prospectus.

The “net asset value” (NAV) of an ETF is determined at the close of each business day, and represents the dollar value of one share of the ETF; it is calculated by taking the total assets of an ETF subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as an ETF's intraday trading value. Investors should not expect to buy or sell shares at NAV. Total returns are based upon closing “market price” (price) of the ETF on the dates listed.

Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.

Diversification does not assure a profit nor does it protect against a loss.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds, in general, will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit marketvectorsetfs.com. Please read the prospectus and summary prospectus carefully before investing.

1 Floating rate notes are less sensitive to interest rate changes, but may decline in value if their interest rates do not rise as much or as quickly as interest rates in general. Investors cannot invest directly in the Index. Yields for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Current fund yields can be found at marketvectorsetfs.com.

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