The Treasury Is Considering Floating Rates

There’s an interesting story out today that the Treasury Department is considering floating rate securities to finance the government’s debt. This could happen within the next year.

The idea is that it works just like a regular bond but the interest rate would be tied to a short-term rate. For example, the Treasury may auction off a 10-year bond that offers a coupon of the current 90-day yield plus, say, 75 basis points. That coupon would then reset every few months.

Obviously, Uncle Sam has had to borrow a lot of money over the past four years, and with rates so low at the short-end, this may be a way to take advantage of lower borrowing costs. I think this is a good idea and it will give investors more options for investing in debt.

Posted by on August 1st, 2012 at 11:01 am


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