Floating-Rate Loans
If the main concern with longer maturity issues is staying out of the way of a yield curve shift when interest rates rise, then a convincing case can be made for adding floating-rate loans to a portfolio. These variable-rate bank loans charge interest based on LIBOR and reset every 60-90 days, which substantially reduces interest rate risk. Although the bank loan category qualifies as below investment-grade, there is actually less risk than may seem apparent because these loans are highly collateralized. The default rate on floating rate loans, according to S&P Capital IQ, is currently less than 2 percent; and if they do default, these are the most senior securities in the capital structure. Volatility in this sector has mostly been low. The current yield of the Barclays High Yield Loan Index is 4.81 percent as of August 26, 2013, according to Bloomberg.