Friday, August 3, 2012

The Treasury to sell floating rate notes? Floating Rates?

I guess the details of this plan remain in the works, but you have to wonder about the timing of such an action. This MarketWatch article explains that more that $660 billion in treasury paper is maturing in the next four years. The potential sale of floating rate treasury notes is obviously a plan to spark demand, enticing those bond investors that want the safety (?) of the treasury note but are worried about rising rates in the future. However, with treasuries rates across the curve at or near-all time lows, you have to be concerned about future funding costs.

Probably the most pertinent quote from the article.....
    John Lonski, chief economist at Moody’s Capital, said floating-rate notes would be attractive to
    investors who are worried that bond yields will spike in coming years as the Fed tries to exit its
    ultra-low-interest-rate policy.

   The decision to sell floating-rate notes is a “tacit admission by the U.S. Treasury that the current
   less-than 2% 10-year Treasury yield stands a high probability of not becoming a lasting feature of
   the U.S. credit market,” Lonski said.



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