“WASHINGTON—The U.S. plans to issue floating-rate notes within the next year, though first it must resolve how to set the adjustable rates on the securities.
The Treasury Department announced plans last year for debt securities with rates that periodically reset either up or down but previously left the timing of their debut open-ended. The main unresolved question for the Treasury is which index will control the notes’ interest rates, a sensitive issue for bond investors, especially after allegations that bankers rigged the London Interbank Offered Rate, or Libor.
Floating-rate notes would be the first addition to the department’s products in more than 15 years, potentially expanding the Treasury’s investor base and helping extend the maturity of government debt.
Unlike fixed-rate securities, floating-rate debt pays interest, depending on how interest rates have moved. To do that, the floating-rate Treasurys would need to have some sort of benchmark, or index, rate to be measured against.
“The main unresolved item continues to be the choice of a floating-rate index,” according to minutes of a Treasury Borrowing Advisory Committee meeting released Wednesday.
The committee, which is composed of executives from some of Wall Street’s largest banks and bond investors, said more than half of the industry preferred using repo rates—derived from swapping high-quality bonds for cash in bank trades. Known as repurchase, or repo, agreements, they are a crucial source of short-term funding for many banks….”
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