Stocks continue racing to record highs, but the bond market faces considerable uncertainty as fixed income traders grapple with unclear policy signals from the Federal Reserve.

That situation was heightened last month when new Fed Chairman Kevin Warsh participated in a press conference that didn’t allay fears about a potential rate hike. While the central bank did not raise rates in July, market participants wanted assurances that further rate hikes are unlikely for the rest of 2026. Walsh didn’t deliver.

However, that may be on brand for the new Fed boss. It’s known that he prefers to avoid situations where the Fed makes promises or implications that don’t pan out. Fortunately, advisors and friends have avenues for dealing with Fed ambiguity, including the WisdomTree Floating Rate Treasury Fund (USFR).

The $18.9 billion USFR has an effective duration of just 0.02 years. That makes it highly appealing to investors as 10-year Treasury yields are dangerously close to 5%. Not to mention that long bond yields are nearing the highests levels in nearly two decades.

Is USFR a Warsh Play?

Perhaps. At the very least, floating-rate bonds and ETFs like USFR could prove to be ideal assets when the Fed keeps investors guessing.

“The bond market could have lived with the decision to keep rates on hold, but the culprit was the lack of any guidance from the Chairman as to what could trigger a response from the Fed to raise rates, especially given the rhetoric around the Fed’s commitment to price stability,” noted Kevin Flanagan, head of investment and fixed income strategy at WisdomTree. “Yes, the money and bond markets have tightened for the policymakers, a development Warsh did acknowledge, but he is quickly finding out that there are limits to his approach without any guidance whatsoever.”

In other words, with no promise that the Fed’s lack of clarity will change anytime soon, bond investors need some allies like USFR. In addition to mitigating rate risk, USFR also doesn’t cheat investors out of income as indicated by its 30-day SEC yield of 3.71%.

As Flanagan puts it, it’d be helpful if Warsh realizes that the Fed and markets “are in this together.” Maybe that will happen and maybe it won’t. If it doesn’t, the utility of USFR will certainly come to light.

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