US Treasury to offer floating rate notes in January

This is a welcome and needed addition to Treasury offerings. Most investors don't have adaquate access to the capital markets to manage interest rate (e.g. swaps) and those that do may not want the incremental counterparty risk of banks or clearing exchanges ("value adding" intermediaries?).

This from the press release:

Floating Rate Notes (FRNs)

Treasury intends to announce the details of the initial Floating Rate Note (FRN) auction on Thursday, January 23, 2014, with the first auction occurring on Wednesday, January 29, 2014. Settlement of the security will occur on Friday, January 31, 2014.  

The FRN is the first new product that Treasury has brought to market in 17 years.  The FRN will have a maturity of two years and Treasury anticipates that the size of the first auction will be between $10 and $15 billion.   

Specific terms and conditions of each FRN issue, including the auction date, issue date, and public offering amount, will be announced prior to each auction.  For more details about the new Treasury FRN product, including a term sheet, FRN auction rules, and Frequently Asked Question, please see:

http://www.treasurydirect.gov/instit/statreg/auctreg/auctreg.htm

In addition, a tentative auction calendar that includes Treasury FRNs can be found at:

http://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Pages/default.aspx

This will be a useful tool for investors looking to manage interest rate and inflation risk.

Update on Thursday, November 7, 2013 at 01:27PM by hb

It's not often that we scoop the WSJ and the FT.

US floating rate debt: take note from the FT: "It is a dream come true: US Treasury debt without the interest rate risk. That’s an investment you can really cram your mattress with."

US to sell $15bn of floating rate debt from the FT: "the arrival of a new Treasury security stands to create a new benchmark for this area of fixed income and, over time, encourage a move away from using the London interbank offered rate as a floating reference rate...“The bulk of corporate floaters uses Libor as the reference rate, and with a Treasury benchmark we may see future corporate floaters change to using the Treasury bill rate,” said Mr Jersey."

U.S. Treasury to Introduce Floating-Rate Notes from the WSJ: "We're looking forward to the issuance," said David Glocke, head of taxable money markets and the Treasury bond trading groups at Vanguard Group Inc., which has nearly $2.4 trillion in U.S. mutual-fund assets under management... "Demand at the beginning will come from Treasury funds. This is a way to diversify and enhance yield at the margin," he said.... We're looking forward to the issuance," said David Glocke, head of taxable money markets and the Treasury bond trading groups at Vanguard Group Inc., which has nearly $2.4 trillion in U.S. mutual-fund assets under management... "Demand at the beginning will come from Treasury funds. This is a way to diversify and enhance yield at the margin," he said."

Our take - WWB suspects the advent of floaters may impact demand for money market funds and bank deposits particularly after the floaters season and people begin to understand more fully that money funds and even bank deposits no longer pass muster when examined for complexity and risk ...operational, liquidity, regulatory and credit risks. And, oh yes, we anticipate the entire interest rate swap market will eventually migrate to the floaters as the reference rate.