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FRNs, Treasury 2 year floating rate notes
Posted: Thu Nov 07, 2013 9:50 am
by 2thefuture
An article at Fidelity (
https://www.fidelity.com/insights/marke ... bt-debates) indicates the treasury will sell 2 year floating rate notes (FRN) starting in January. Any thoughts if they would be as safe as 1 year STT bills in the cash potion of the PP.
Re: FRNs, Treasury 2 year floating rate notes
Posted: Fri Nov 08, 2013 3:39 pm
by fnord123
Seems as safe as very short term T-Bills (4 week, etc.)
Most likely the yields will be similarly low. Watch out as they may go negative on auction, in which case it is better to stay in the 0% cash account TreasuryDirect offers.
Re: FRNs, Treasury 2 year floating rate notes
Posted: Mon Dec 09, 2013 8:49 am
by dualstow
I'm very curious about these. Treasury Direct website says
Floating Rate Notes (FRNs): FRNs are a type of medium-term security of 2 years. They are securities with an interest payment that can change over time. As interest rates rise, the security's interest payments will increase. Similarly, as interest rates fall, the security's interest payments will decrease. This security makes use of an index rate (tied to the most recent 13-week bill rate prior to the lockout period) and spread (determined at auction) to calculate an interest rate. The index rate changes periodically, in this instance every week, causing the interest rate to change or "float". After purchase, FRNs pay interest to your selected payment destination every three months, based upon the accrued interest for the payment period applied to the par. Minimum purchase is $100 with multiples sold in the same increment. The maximum amount for a noncompetitive purchase is $5 million.
Here is Murphy's older thread on this instrument, although it's in the Bonds section instead of Cash:
http://gyroscopicinvesting.com/forum/bo ... /#msg65736
Re: FRNs, Treasury 2 year floating rate notes
Posted: Wed Mar 12, 2014 8:57 am
by Stewardship
It seems to me T-FRNs may be a better choice for the cash portion when compared to 4-week T-Bills because T-FRNs have (correct me if I'm wrong):
- Higher interest rate,
- 1/2 the interest rate risk,
- and 1/26 the rollover frequency (thus decreasing availability risk.)
fnord123 wrote:
... in which case it is better to stay in the 0% cash account TreasuryDirect offers.
Question: Is cash sitting in a TD account outside of treasuries subject to default risk?
Re: FRNs, Treasury 2 year floating rate notes
Posted: Wed Mar 12, 2014 8:58 pm
by sophie
I read the fine print on floating rate notes when they first came out. For the life of me I can't figure out what advantage they have over 3 month T-bills with auto rollover (available at TD and Fidelity, perhaps other brokerages I don't know about). In fact, the 3 month T-bills can be laddered so that 1/3 roll over once a month, if you like. So I decided to stick with the 3 month T-bills and wait to see what happens with these.
Yes, you get a few cents in the Zero C of I account at Treasury Direct when the bills roll over. Whoo hoo.