In a rising-rate environment, investors are looking for income-generating assets that can protect their portfolios from inflation. One option that has been gaining popularity is floating-rate loans.
Floating-rate loans are loans that have interest rates that adjust periodically, usually based on a benchmark interest rate such as the Secured Overnight Financing Rate (SOFR). This means that when interest rates rise, the interest payments on floating-rate loans also rise, providing investors with some protection from inflation.SourceMoneyGuru-https://www.mgkx.com/5080.html
In addition to their inflation protection, floating-rate loans also offer attractive yields. This is because they are typically made to companies with below-investment-grade credit ratings, which means that investors demand a higher return to compensate for the risk of default.SourceMoneyGuru-https://www.mgkx.com/5080.html
Of course, there is no such thing as a risk-free investment, and floating-rate loans are no exception. The companies that receive these loans are more likely to default than those with investment-grade ratings. However, the risk of default is mitigated by the fact that lenders of floating-rate loans are typically first in line to be paid if a borrower declares bankruptcy.SourceMoneyGuru-https://www.mgkx.com/5080.html
Overall, floating-rate loans can be a good investment for income-seeking investors in a rising-rate environment. They offer protection from inflation and attractive yields, but it is important to be aware of the risks involved before investing.SourceMoneyGuru-https://www.mgkx.com/5080.html
Here are some things to consider when investing in floating-rate loans:SourceMoneyGuru-https://www.mgkx.com/5080.html
- Credit quality: As mentioned above, floating-rate loans are typically made to companies with below-investment-grade credit ratings. This means that there is a greater risk of default than with investment-grade bonds. It is important to carefully evaluate the creditworthiness of the borrowers before investing in floating-rate loans.
- Term: Floating-rate loans typically have maturities of 5 to 7 years. This is longer than the typical maturity of a bond, so it is important to make sure that you are comfortable with the duration of the investment.
- Liquidity: Floating-rate loans are not as liquid as bonds, which means that it may be more difficult to sell them if you need to access your money quickly.
If you are looking for an income-generating asset that can protect your portfolio from inflation, floating-rate loans can be a good option. However, it is important to understand the risks involved before investing.SourceMoneyGuru-https://www.mgkx.com/5080.html SourceMoneyGuru-https://www.mgkx.com/5080.html