Seeking Alpha has published my article Treasury Floaters Muddy the Waters. It discusses the possibility that the U.S. Treasury will begin to sell floating-rate debt alongside its traditional fixed-rate bills, notes and bonds. The Treasury might employ floaters as part of a strategy to extend the average maturity of its debt. While average maturity is a good indicator of the interest rate risk to an issuer of fixed-rate debt, it does not capture the interest rate risk of floaters. If the Treasury uses floaters to increase the average maturity, it could create the appearance, but not the reality, of reduced interest rate risk.
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Creating the appearence of reduced interest rate risk, sound familiar…
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Dexter, thank you for your comment. Here’s another piece on this topic that you might find interesting:
http://washingtonoutside.blogspot.com/2012/02/treasury-debt-management-and-floating.html
It’s interesting to learn that Treasury had considered FRNs in the 1990s, but Secretary Summers rejected the idea.
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That was probably the result of the low interest rate policies of the 90s, but instead they chose to pay down the deficit. I don’t think the government is likely to diminish the deficit anytime soon, so they are trying to spurr excitemenet as foreign demand is decreasing due to low yeilds. You should write an article about FRN’s on Wikipedia: http://en.wikipedia.org/w/index.php?title=United_States_Treasury_security&action=edit
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Dexter, thanks for the Wikipedia suggestion. I’ll look in to it. Best, Win
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