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US Treasury launches floating rate note

The US Treasury announced Thursday its first auction of floating rate notes, adding the first new security to its range of debt instruments in 17 years.

WASHINGTON: The US Treasury announced Thursday its first auction of floating rate notes, adding the first new security to its range of debt instruments in 17 years.

The notes will carry an interest rate that resets each day, based on the discount rates in auctions of 13-week Treasury bills, and coupon payments will be made quarterly.

The bonds could be attractive in an environment of rising interest rates, with the Federal Reserve having just embarked on a path of ratcheting down its huge stimulus program, a move expected to slowly tighten monetary conditions.

The Treasury said the floating rate notes (FRNs) would help expand its investor base and also help extend the average maturity of the country's US$17.3 trillion debt.

"Floating rate notes bring additional diversity to Treasury's current portfolio and help support our goal of saving taxpayer dollars by financing the government's borrowing needs at the lowest cost over time," Under Secretary for Domestic Finance Mary Miller said in a statement.

The initial auction will be for US$15 billion in two-year FRNs and will take place on January 29.

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