USFR Delivered 20% Returns Where TLT Lost 28%: Here’s the Catch

Retirees who watched intermediate bond funds bleed principal during the 2022 to 2023 rate shock have spent the last few years hunting for fixed income that pays monthly without the duration trap. WisdomTree Floating Rate Treasury Fund (NYSEARCA:USFR) was built for exactly that problem. The fund holds floating-rate Treasury notes whose coupons reset weekly against the 13-week T-bill auction, which is why USFR has an effective duration close to zero even though it pays monthly. With $17.33 billion in assets and a 0.15% expense ratio, USFR has become the default short-duration Treasury vehicle for income-focused investors.

How the fund actually generates income

The return engine is mechanical. USFR owns floating-rate Treasury notes whose coupons reset every seven days based on the most recent 13-week T-bill auction. When short rates rise, the coupon adjusts within days. When they fall, the same thing happens in reverse. That structure is why the share price barely moves: the recent intraday range has been a single penny, with the price hovering around $50.

The yield environment is set by the Fed. The Federal Funds target upper bound is 3.75% after three consecutive 25-basis-point cuts between September and December 2025, and the 13-week T-bill yield is near 3.8%. USFR’s distributions track that benchmark closely. The most recent monthly payment was $0.15124 per share at the June 25 ex-dividend date, putting the trailing dividend at $1.93 per share and a yield of 3.84%.

Does the math work versus the alternatives

This is where USFR earns its keep. Over the past five years, USFR returned 20.01% on a total return basis. Over the same window, iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) lost 28.3% as long duration buckled under the rate-hiking cycle. iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) returned just 2.04% over the same five years. The duration-free version of the trade beat the long bond by roughly 48 percentage points and the intermediate bond by 18 points, with almost no drawdown along the way.

The WisdomTree Floating Rate Treasury Fund is up 4% over the past year and 1.86% year to date. The national average 12-month CD pays 1.65%, so the spread to a comparable bank product is wide, and the fund can be sold on any trading day.

The tradeoffs

1. Yields reprice quickly when the Fed cuts. The distribution shrinks within weeks of every rate cut. Dividend growth over the trailing twelve months is-16.46%, a direct consequence of the 75 basis points the Fed cut late last year.
2. Floating coupons track short rates while CPI moves independently. For inflation-linked exposure, a TIPS fund covers that role separately.
3. Ordinary-income tax at the federal level. Distributions are taxed as interest. The offset is the state exemption on Treasury interest, which is material for residents of California, New York, and New Jersey.

Who this fits

The WisdomTree Floating Rate Treasury Fund works as the T-bill sleeve of a retiree bond ladder or as a parking spot for cash that needs to earn near the Fed Funds rate without locking into a CD. A 66-year-old who moved $400,000 out of intermediate bonds after 2022 gets monthly distributions, near-zero rate sensitivity, and the state tax exemption. The fund alone does not provide capital appreciation or inflation protection; those roles are typically filled by intermediate Treasuries, such as the iShares 3-7 Year Treasury Bond ETF, and a TIPS fund.

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