The Fed Just Raised Rates for the First Time Since 2023. These Six Funds Get a Raise With It

Ryne Mauck

Fri, September 18, 2026 at 12:05 AM GMT+3 5 min read

Quick Read

The Fed's first rate hike since 2023 punishes AGG's fixed-coupon bonds, while USFR and TFLO automatically reprice higher, each returning roughly 2.8% year-to-date with zero duration risk.
JAAA's AAA-rated CLO tranches returned 4.92% over the past year, while CLOZ's mezzanine tranches offer a ~7% forward yield but absorb credit losses first in a downturn.
The 10Y-2Y yield curve has flattened to 0.33%, signaling markets expect a short hiking cycle, which argues for a partial rotation rather than fully dumping AGG.
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If you hold the iShares Core U.S. Aggregate Bond ETF (NYSEARCA:AGG) as your core bond position, the past week made your job harder. The Fed pushed its target rate higher for the first time since 2023, and AGG's fixed-coupon Treasuries and corporates got no raise to go with the move. AGG owns thousands of high-quality bonds with meaningful duration, which is exactly the reason people buy it, and exactly the reason its price bleeds when short rates climb. There is a better way to own the rate move: funds whose coupons reset the moment the Fed does.

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Treasury Floaters That Reprice Weekly

Start with the two Treasury floating-rate note ETFs. The WisdomTree Floating Rate Treasury Fund (NYSEARCA:USFR) charges a 0.15% expense ratio and holds Treasury FRNs whose coupons reset off the 13-week bill auction. Its distributions rose from $0.14489 in February to $0.16046 in August 2026, tracking the short end higher in real time. The iShares Treasury Floating Rate Bond ETF (NYSEARCA:TFLO) does the same job with a different sponsor, holding $6.7 billion in Treasury FRNs. Both delivered near-identical results year-to-date: USFR up 2.8% and TFLO up 2.73%, with essentially zero duration.

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The iShares Floating Rate Bond ETF (BATS:FLOT) extends the same idea into investment-grade corporate paper, holding roughly $9.3 billion across banks, supranationals, and blue-chip issuers. It returned 3.01% year-to-date and 4.44% over the past year. That extra credit spread over Treasuries is why FLOT led USFR and TFLO on the year, and it is the tradeoff to accept: you take a sliver of corporate default risk to earn it.

CLOs: More Yield, Different Risk

The Janus Henderson AAA CLO ETF (NYSEARCA:JAAA) owns the senior-most tranches of collateralized loan obligations, floating-rate paper rated AAA with monthly distributions that annualize to roughly $2.49 per share on a price near $50.63 (if the every-30-days cadence appeals, we've rounded up seven other monthly payers in a free report here). It returned 4.92% over the past year, the best of the pure floating-rate group.

The Eldridge BBB-B CLO ETF (NYSEARCA:CLOZ) drops down the capital stack into mezzanine tranches, charging a higher 0.50% expense ratio in exchange for materially higher income — an annualized forward payout of $1.7786 on a $26.20 share price, or roughly a 6.8% forward yield. In a recession or credit shock, CLOZ's mezzanine tranches take losses long before JAAA's do — size the position accordingly.

An Equity Option Nobody Talks About

For investors who want equity exposure tuned to the rate environment, the Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR) screens dividend payers with positive correlation to rising 10-year yields. It leans into financials, energy, and select technology, with NVIDIA at 8.51% and Apple at 7.07% as its top holdings. FDRR returned 14.76% year-to-date and 21.83% over the past year. It is an equity fund with equity drawdown risk, so treat it as a complement to a floating-rate sleeve.

Tradeoffs Worth Naming

Swapping AGG for floating-rate funds gives up the price gain a rally in long rates would produce. If inflation cools and the Fed reverses, AGG's duration works for you, and USFR's coupons reset lower. The 10Y-2Y spread has flattened to 0.33% as of September 15, 2026, so the curve is telling you the market does not expect this hiking cycle to last long. That argues for a partial rotation.

Making the Move

In a tax-advantaged account, rebalancing is frictionless. In a taxable account, check embedded gains in AGG before selling; a partial trim into USFR or JAAA preserves your cost basis and still captures the reset. A workable split for a rate-cautious income investor: keep a core AGG position for the eventual cutting cycle; move new cash into USFR or TFLO for the immediate coupon reset; and layer in JAAA for extra yield without stepping into equity risk.

What This Means Right Now

AGG still has a role. It is simply the wrong instrument for the specific move the Fed made this week — not a fund to abandon entirely. If you own it purely for stability and current income, USFR and JAAA give you a higher, self-adjusting coupon at similar or lower credit risk. If the next Fed move is a cut rather than another hike, be ready to rotate back. Evaluate the trade against your own tax situation and time horizon, not the headline.

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