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Treasury to Offer $15 Billion in First Floating-Rate Notes

U.S. Treasury Department
The U.S. Department of the Treasury building stands in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

The U.S. Treasury Department will offer $15 billion in its first auction of floating-rate notes next week, trying to capitalize on robust investor demand for the safest short-term investments.

Floaters, the Treasury’s first new security in 17 years, will be sold at a Jan. 29 auction, with non-competitive bids closing at 11 a.m. and competitive bids ending at 11:30 a.m. Interest payment dates will be April 30, July 31, Oct. 31 and Jan. 31, the department said today in a statement.

“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,” Mary Miller, the Treasury’s undersecretary for domestic finance, said in a separate statement.

Additional sales of floaters will occur in April, July and October, with two reopenings in the subsequent months of each quarter, the Treasury said.

The offering announced today is at the upper end of the Treasury’s previously released range of $10 billion to $15 billion.

“It’s a vote of confidence in the market,” said Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York.

Potential Rise

The new kind of debt offers investors a short-term security that’s a hedge against a potential rise in interest rates. For the Treasury, the world’s largest sovereign debt issuer, the goal is to provide additional debt that appeals to investors.

Buyers will probably include asset managers, corporate treasurers, municipalities and government-sponsored enterprises, and central banks, according to Fidelity Investments senior Vice President Karthik Ramanathan, a former Treasury debt management director.

In when-issued trading, which is conditional on the auction’s completion, the security traded at a spread of about 4.8 basis points over three-month Treasury bills at 2:32 p.m. in New York today.

“It’s trading in pretty tight levels,” Treasury Assistant Secretary for Financial Markets Matthew Rutherford said in an interview on Bloomberg Television today. “We think there will be a lot of demand for the product and I think it will be a success.”

The securities are considered short term because they are benchmarked to a short-term index -- the high rate from a 13-week bill. The rate at which interest will accrue on the notes will be re-set daily.

Treasury is trimming the short term securities and issuing more of long-term debt to lock in the low interest rates for a longer time.

“A few years ago, prior to the financial crisis, we were issuing about $24 billion of 30-year bonds a year,” Rutherford said in the interview. “This year we will probably do closer to $168 billion in 30-year bonds.”

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