INFAs: The Smart Move in a Rising Rate World

The Federal Reserve's May 2025 decision to hold interest rates steady at 4.25%–4.5% underscores a pivotal moment for income-seeking investors. With inflation hovering above 2% and trade policy risks clouding the outlook, the hunt for stable returns in a high-rate environment has never been more urgent. Enter Investment-Grade Floating Rate Notes (INFAs)—a category of debt instruments positioned to thrive in this uncertain landscape.

Why INFAs Now?
INFAs, often overlooked in favor of traditional bonds, offer a compelling solution to two key investor concerns: interest rate risk and yield sustainability. These notes—issued by companies with strong credit ratings—are structured to reset their coupon payments periodically, typically quarterly, based on short-term benchmarks like the Secured Overnight Financing Rate (SOFR). This floating-rate mechanism ensures investors benefit from rising rates while shielding them from the erosion of fixed-income values in a tightening cycle.

The Fed's Tightrope Walk
The Fed's “wait-and-see” stance reflects its struggle to balance inflation and unemployment risks. While Chair Powell insists current rates are “in a good place,” J.P. Morgan strategists anticipate potential cuts by year-end—a signal that volatility will persist. For income investors, this ambiguity demands strategies that adapt to rate shifts. INFAs excel here: their coupons adjust in real time to Fed policy, eliminating the guesswork of timing rate moves.

Yield Advantage Over Treasury Bills
INFAs currently offer superior yields to ultra-safe Treasury bills (T-bills), a gap that widens in high-rate environments. As of May 2025:
- 2-year Treasury yields hover at 4.05%, while INFAs yield between 4.3%–5.0%.
- Risk-adjusted returns favor INFAs: their credit ratings (BBB+ or higher) ensure stability, and their floating coupons negate the interest rate risk inherent in fixed-rate bonds.

Liquidity and Creditworthiness: A Winning Combo
INFAs combine the liquidity of short-term debt with the credit strength of investment-grade issuers. Unlike long-dated bonds, which face steep price declines in rising rates, INFAs typically maintain stable prices because their coupons reset frequently. This “interest rate immunization” makes them a safer harbor for cash flows.

The Defensive Play for 2025
In an era of Fed uncertainty, INFAs are not just a tactical bet—they're a foundational income asset. Their features align perfectly with current conditions:
1. Rate-Hike Protection: Coupons rise with SOFR, ensuring yields keep pace with inflation.
2. Low Volatility: Minimal price sensitivity to rate fluctuations means less portfolio whiplash.
3. Credit Safety: Issuers are financially robust, reducing default risk even in a slowing economy.

Act Now—Before the Fed's Next Move
While strategists debate the timing of potential rate cuts, one truth remains: cash remains king in a high-rate world. INFAs allow investors to lock in today's elevated yields while retaining the flexibility to adapt to Fed shifts. For those seeking income without sacrificing safety, the time to act is now.

The Fed's caution signals prolonged uncertainty—a reality INFAs are built to navigate. Don't let rising rates shrink your returns. Position your portfolio with the agility of Investment-Grade Floating Rate Notes today.

John Gapper
May 26, 2025