It’s getting to be downright embarrassing to be an American…

Treasury Plans Floating Rate Notes, Looks at Negative Rate Bids

By Meera Louis and Cheyenne Hopkins

August 1 (Bloomberg) — The U.S. Treasury Department said today it is developing a floating rate note program that could be operational at least a year away, while it is also looking at capabilities for negative rate bidding.

The U.S. Treasury Department said it plans to sell $72 billion in notes and bonds in next week’s refunding. The Treasury intends to auction $32 billion in 3-year notes on Aug. 7, $24 billion in 10-year notes on Aug. 8 and $16 billion in 30-year bonds on Aug. 9.

“Treasury plans to develop a floating rate note program to complement the existing suite of securities issued and to support our broader debt management objectives,” the department said in a statement today. “The first FRN auction is estimated to be at least one year away.”

The Treasury also said it is “in the process of building the operational capabilities to allow for negative rate bidding in Treasury bill auctions, should we make the determination to allow such bidding in the future.”

The Treasury said that the U.S. debt limit is expected to be reached at the end of this year, and it expects to use “extraordinary measures” to fund the government into early 2013.

The Obama administration said July 27 it is forecasting the federal budget deficit will be $1.21 trillion this year, down from $1.33 trillion projected in February. The U.S. faces a so- called fiscal cliff of higher taxes and reductions in spending on defense and other government programs that will take effect at year-end unless Congress acts.

“I think it’s pretty clear that the Treasury has to tread lightly,” William O’Donnell, head U.S. government bond strategist at the Stamford, Connecticut-based RBS Securities primary dealer unit of Royal Bank of Scotland Group Plc., said by e-mail before the report. “There is a lot of uncertainty in the near-future path(s) of outlays and receipts and the fog may not lift until the fiscal issues are addressed.”

26 Responses

  1. These proposals are indeed stupid, but couldn’t issuing floaters actually be a good thing if rates rise in that interest costs will rise and therefore so will the deficit? Not the best way to do it of course but any increase in NFA creation is a positive.

  2. Treasury Floating Rate Notes have been in place in Brazil for quite some time.

    Yet the country remains solvent.

    Go figure!

  3. Just wondering if there is something specifically embarrassing about FRNs – or is it just an extension of the same embarrassment that stems from the Treasury/Congress thinking they can spend there way to insolvency?

  4. C’mon, this is all they’ve got, FRN. How’s that help anyone but the traders and bond holders. What happened to Treasury operations designed to serve public purposes?

    Some one whisper to Geithner, “there’s a thing called seniorage” that gets us to where 99% of the people ought to be without having to gin up “jackleg” gimmicks like FRN.

  5. It was embarrassing to be an American a long time ago, but the fact that central bank policy is what makes you proud or not proud to be an American, rather than our horrifying foreign policy, joke schools, crumbling infrastructure, denial of science, use of torture, etc. makes me kind of sad. But I’m sure you didn’t mean it like that. Just wanted to point out your mistake in word choice.

    1. @Cholby,
      Frankly, it’s embarrassing to be human. People like Warren ( trying to make the world better with little personally to gain) make me proud to be an American.

  6. The financial rube Goldberg machine expands and more human lives evaporate into abstraction wasteland. We are freaking doomed!

  7. Why is that such a bad idea? It is excellent!

    Isn’t the same as issuing only 3m bills that you propose all the time? Should Treasury then issue *ONLY* floating bonds? Go Americans, go!

      1. @WARREN MOSLER,

        Warren: think about what they will float off of. t bills?

        t-bills for all practical purposes are floating even in the current form. And bonds paying coupons semiannually, and not quarterly or even monthly like in other countries, only give more weight to this argument.

    1. @Cholby, mosler says the financial sector is more trouble than its worth. A parasite on the Res of world. Worse than useless. Cholby u disagree w our esteemed guru? I know mosler has advocated for drug legalization, will u accuse him of crack too? Maybe u and Monica can go behind the bathrooms and discuss body parts. :p

  8. There’s nothing wrong with FRNs per se, other than the fact that those proposing this idea have no clue that FRNs are functionally the same as rolling over short term bills and that can never be a problem. These idiots already rolled over something like $60 trillion THIS FISCAL YEAR. What are they worried about? Geithner’s an idiot.

    1. @mike norman, mike he is the most effing Transparent secretary Eva! You personally give me hope mike. You went from a fox shill ridiculing schiffs housing call to someone I can now respect. There is hope for more to change. Fed and treasury ppl included. Don’t stop beleivin. Hold onto that feelin

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