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Treasury Issues Draft Floating Rate Note Term Sheet

Tyler Durden's picture


As we reported well over a year ago coupled with some subsequent thoughts on what the inevitable launch of floating rate notes (FRNs) by the US Treasury means for the US bond market, we now learn that the launch of FRN Treasurys is imminent and the first US FRN note may come to the public as soon as a few months from now. As the Treasury's refunding statement issued moments ago announced, "we plan to issue a final rule on floating rate notes in the coming months, with the first FRN auction estimated to occur in either Q4 2013 or Q1 2014.  This timeframe reflects Treasury's best estimate for implementing required auction regulations and IT systems modifications. Treasury will provide additional information regarding the timing of the first auction at the August refunding."

Treasury adds: "Treasury has reviewed the comment letters that were received in response to the Advance Notice of Proposed Rulemaking (ANPR) published on December 5, 2012.  We have decided to use the weekly High Rate of 13-week Treasury bill auctions, which was described in the ANPR, as the index for Treasury FRNs."

So much for Libor.

Below is the full sample term sheet provided by the Treasury on what to expect quite shortly out of Jack Lew's department:


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Wed, 05/01/2013 - 09:43 | 3517518 Cognitive Dissonance
Cognitive Dissonance's picture

There simply is no end to the tricks the Ponzi masters can and will use to keep the Ponzi ship afloat......even as it sinks below the waves.

Wed, 05/01/2013 - 09:45 | 3517525 Stackers
Stackers's picture

Adjustable Rate Sub-prime government bonds ...... what could possibly go wrong.

Wed, 05/01/2013 - 09:52 | 3517533 Cognitive Dissonance
Cognitive Dissonance's picture

Power NEVER willingly relinquishes its hold on power. NEVER! Power must be pried from their (sometimes cold dead) hands.

That does not mean force must be applied. If a majority of people wanted this farce to end it would all end quickly. The King serves at the behest of his court and WE are the King's court.

Wed, 05/01/2013 - 09:57 | 3517580 disabledvet
disabledvet's picture

Indeed. "We the People"'(meaning literally ALL of us) "are merely an entertaiment device." for whom I'm still trying to figure out...but if you want to wrought out evil sometimes you gotto go over to the dark side. Zero Hedge bitchez...

Wed, 05/01/2013 - 10:07 | 3517618 LawsofPhysics
LawsofPhysics's picture

Necessity will drive most people and any dependable tribes to aquire things for themselves and keep the local political puppets in check.  All economies are indeed local.  Make all the decrees you want in Washington D.C.  States like Texas, Utah, Arizona and New Mexico don't give a shit and are preparing to do their own thing anyway.  The "official market" will become less and less relevant as the world heads into war, again.  Chance will always favor the prepared, hedge accordingly.  Guess those progressive fucks should have let all those private companies fail and the bond holders, shareholders, and owners take the loss after all.  Fucking morons.  Real consequences for bad behavior motherfucker.  your system had better insure this or the laws of physics and Nature will.

Wed, 05/01/2013 - 10:20 | 3517687 BobPaulson
BobPaulson's picture

Not sure how local we are free to be as we converge to a centrally controlled currency. It all circles back to who can print money and give it to themselves. I have yet to observe a good or service that cannot be bought at the right price. Division by infinity means the printers own everything and you are just holding it for them. Until their ability to use currency to confiscate everything and undermine the conceot of ownership is curtailed, I don't see a happy endgame. It may be a few years away but this game ends in conflict. I think it takes starvation or people seeing their kids harmed by the system before the proles rise up. 

Wed, 05/01/2013 - 10:26 | 3517721 LawsofPhysics
LawsofPhysics's picture

Bullshit, I have exchanged produce and silver for goods and services locally.  Do it all the time.  Starvation is indeed already a motivator, long sharecropping...

Wed, 05/01/2013 - 10:38 | 3517763 bania
bania's picture

Floaters in the pool!

Wed, 05/01/2013 - 10:41 | 3517778 spastic_colon
spastic_colon's picture

"reviewed the comment letters......"  so from their largest customers, China and the Fed, and they both voted for FRN's

Wed, 05/01/2013 - 10:50 | 3517834 NotApplicable
NotApplicable's picture

I'm losing track here... are these bonds smoke, or mirrors?

Wed, 05/01/2013 - 10:45 | 3517790 SilverMaples
SilverMaples's picture

FRN treasuries are ...

Let me borrow some money from you where "I" decide how much interest I pay you at a future date

Ho, and why use LIBOR when we got the FED? Hooo right! Zero interest rates forever, hedge accordingly ...

Wed, 05/01/2013 - 10:46 | 3517671 LawsofPhysics
LawsofPhysics's picture

"WE are the King's court." - and we are tired of paper fucking promises and an utter lack of accountability, roll the mother fucking guillotines, time for the king's "haircut".

Wed, 05/01/2013 - 13:04 | 3518577 Totentänzerlied
Totentänzerlied's picture

Who's we?

Your fellow sheeplemericans, and the rest of the world too, are in thrall with their kings and their courts and the entire state apparatus in theory and in practice, and, generally speaking, always have been, even if they may not like the person of the king at any given moment, in basically the same way one might not like the latest actor chosen to play James Bond. They don't know what "paper promise" means and they could not care less about accountability, which most of them can't even spell.

Wed, 05/01/2013 - 10:06 | 3517620 oleander garch
oleander garch's picture

Dude, just imagine the commissions we'll be getting from all the swaps we are going to write against these floating interest ate Treasuries!  The municiicpal and state swap market is going to blow up soon.  Timing could not be any better!

The future is so bright I am wearing sunglasses at night.

Wed, 05/01/2013 - 12:08 | 3518280 MFLTucson
MFLTucson's picture

Why bother with names when they are the only buyers of this crap?

Wed, 05/01/2013 - 09:53 | 3517551 Stoploss
Stoploss's picture

Aww, they're trying to put some risk in the bond market..



Wed, 05/01/2013 - 10:09 | 3517641 disabledvet
disabledvet's picture

So what's the difference between an an FRN (floating rate note) and an FRN? (Federal Reserve Note or "cash money"? They all EQUAL the word I'm looming for here? Help me out CNBC and Bloomberg...

Wed, 05/01/2013 - 10:42 | 3517787 NotApplicable
NotApplicable's picture

New version of the same ole trick?

It's like a dog that grows a new tail each time the last one fails to wag him anymore.

Wed, 05/01/2013 - 09:47 | 3517520 FieldingMellish
FieldingMellish's picture

Will go nicely with the zero coupon FRNs currently issued by the Fed called $.

Wed, 05/01/2013 - 09:52 | 3517545 resurger
resurger's picture

zero hedge will have no shortage of moar ponxi when Jack Jew takes over

Wed, 05/01/2013 - 09:47 | 3517521 Tijuana Donkey Show
Tijuana Donkey Show's picture

I sense a disturbance in the force, as if a thousand bankers shouted out, then were silenced. 

Wed, 05/01/2013 - 09:49 | 3517529 resurger
resurger's picture

why a FRN! NIR is coming soon?!

Wed, 05/01/2013 - 09:48 | 3517537 buzzsaw99
buzzsaw99's picture

A 2y note with a 13 week rate. lolololololololololololololol!!!!!!!!!

Wed, 05/01/2013 - 10:16 | 3517660 Dr. Richard Head
Dr. Richard Head's picture

They should be issuing 15 minute rates being that Bernanke can handle all of that in minutes.

Wed, 05/01/2013 - 10:20 | 3517677 buzzsaw99
buzzsaw99's picture

those are already negative

Wed, 05/01/2013 - 09:52 | 3517543 Everybodys All ...
Everybodys All American's picture

If that doesn't get another ratings downgrade of the US debt nothing will.

Wed, 05/01/2013 - 09:51 | 3517546 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Excuse my ignorance but who and how are the floating rates determined?

Wed, 05/01/2013 - 09:54 | 3517568 buzzsaw99
buzzsaw99's picture

read. the. article.

Wed, 05/01/2013 - 10:01 | 3517597 Tijuana Donkey Show
Tijuana Donkey Show's picture

Buzz, no one reads in America, you know that! Remember that 1/4 of all high school grads are functionally illiterate above a 4th grade level. Put this sucker on YouTube, and people might understand. 

Wed, 05/01/2013 - 10:15 | 3517650 Joe Davola
Joe Davola's picture

Can't tell whether it's the Scribd plugin or they used the run-on font, but that thing's hard to read.

Wed, 05/01/2013 - 10:19 | 3517683 FieldingMellish
FieldingMellish's picture

Tyler pointed it out in the lead-in: 

We have decided to use the weekly High Rate of 13-week Treasury bill auctions, which was described in the ANPR, as the index for Treasury FRNs."

Wed, 05/01/2013 - 10:17 | 3517659 buzzsaw99
buzzsaw99's picture

okay, here we go, for the short bus riders:

Wed, 05/01/2013 - 10:26 | 3517692 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Jesus fucking christ ask a simple question. Tough crowd. Point taken though. God forbid you try to learn something and ask a simple question to get pointed in the right direction. I got what I needed anyways after rereading just need to find the correct formulas. I am just trying to determine how they are going to rig this one like Libor.

Wed, 05/01/2013 - 10:25 | 3517712 SheepDog-One
SheepDog-One's picture

Oh, it IS the toughest of crowds, no doubt about that. But still this is should have seen ZH in the old days!

Wed, 05/01/2013 - 10:42 | 3517781 fuu
fuu's picture

In the old days people actually answered questions and educated people.

Wed, 05/01/2013 - 11:31 | 3518031 knukles
knukles's picture

I dunno, I been tellin folks for years to either do your own due diligence, read the article, learn English ex-Ebonics, get a life or grow up....
Ah, the good olde days

Wed, 05/01/2013 - 10:41 | 3517771 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Here is the full 6 page draft dated 2012 of that scribd document including the methodologies and formulas they are using to determine the discount rates. How about that for reading assholes and finding your own answers that are missing from the above scribd document and article. The information is incomplete but you should know that since you people read it already.

Formulas the treasury is using to calculate the FRN's

And some examples provided by the Treasury using past rates

Wed, 05/01/2013 - 11:33 | 3518049 knukles
knukles's picture

See, doing one's own research is rewarding and builds self-esteem

Wed, 05/01/2013 - 11:42 | 3518138 buzzsaw99
buzzsaw99's picture

My apologies. I didn't realize you wanted a long complicated answer:

Wed, 05/01/2013 - 09:57 | 3517584 Everybodys All ...
Everybodys All American's picture


Wed, 05/01/2013 - 10:28 | 3517729 savagegoose
savagegoose's picture

so a $5 mill min  bond purcase, 50 000  initial purchase @ $100 , i can offer....  10c.  where do i type in my bid?

Wed, 05/01/2013 - 09:50 | 3517548 20834A
20834A's picture

OT: WHOA! Connecticut going to track gold buyers? And require dealers to keep a 'general description of buyers'!?


Wed, 05/01/2013 - 09:58 | 3517575 Quinvarius
Quinvarius's picture

You know what happens right after "then they fight you"?

Wed, 05/01/2013 - 10:44 | 3517795 NotApplicable
NotApplicable's picture

Yer dead?

Wed, 05/01/2013 - 09:58 | 3517576 Quinvarius
Quinvarius's picture

You know what happens right after "then they fight you"?

Wed, 05/01/2013 - 10:07 | 3517624 Shell Game
Shell Game's picture

Of course they are!  The divided Stalinist States of Merika are splitting into the Unicorns For All states and the Hell Yes, Manufacture Your Guns Here states.  

Anything that threatens the Dollar is a National Security Risk, anything that is in shortage is a National Security Risk - the unicorns must flow...

Wed, 05/01/2013 - 11:24 | 3517996 viahj
viahj's picture

can an entire state go 'Detroit'?  we'll see.

Wed, 05/01/2013 - 09:57 | 3517570 youngman
youngman's picture

Like I would trust the bench mark as being a true benchmark....that TPTB could not play with it somehow....yeah right..I just bought some swampland in Florida...but I at least new it was swamp land first...or was it a bridge in Brooklyn

Wed, 05/01/2013 - 10:03 | 3517595 Juggernaut Nihilism
Juggernaut Nihilism's picture

Endgame.  Interest rates are going up.  Other bottom indicators include Apple choosing now to issue their bonds.  When interest rates go up, batten down the fucking hatches.

Wed, 05/01/2013 - 10:24 | 3517713 FubarNation
FubarNation's picture

I do believe then when (and I dare say if) interest rates rise to 'free market' values we will witness the largest clusterfuck/shitstorm that humankind has ever witnessed.

Wed, 05/01/2013 - 11:29 | 3518013 viahj
viahj's picture

nah, it would just be the end of the PetroDollar, Yen and Euro.  all others are already enacting plans for this enventuality.

Wed, 05/01/2013 - 13:45 | 3518788 andrewp111
andrewp111's picture

Rates are never going up again. But that clusterfuck/shitstorm is still going to happen as QE is already well past the point of diminishing returns.

Wed, 05/01/2013 - 10:07 | 3517603 Dr. Engali
Dr. Engali's picture

This is pretty curious timing with the Bernank heading out the door. I hope people are moving out of their long dated bonds before the herd starts to stampede.

Wed, 05/01/2013 - 10:11 | 3517636 LawsofPhysics
LawsofPhysics's picture

You are an optimist.  the "herd" is complacent.  Moreover, what exactly are they going to "stampede" into?  Do tell...

Wed, 05/01/2013 - 10:17 | 3517662 Dr. Engali
Dr. Engali's picture

They aren't going to be so complacent when rates start going up, and floating rate bonds are a signal that they are. Or at least they are expecting them to. I would like to say that the herd would head into precious metals, but I doubt that the paper pushers will have the common sense to do so. Hell who knows TPTB might manufacture some crisis to keep enough fear in the sytem so the sheep stay in bonds.

Wed, 05/01/2013 - 10:21 | 3517681 fonzannoon
fonzannoon's picture

Okay now you are confusing me :)

Didn't you just say rates will never go up?

Look at Libor Doc. a bunch of douchebags bought each other champagne and rates all over the world stayed down.

To say rates will rise is to say the stock market will have a correction. Neither will happen. We have passed that option. We have passed through the event horizon. What happens next, if it even happens at all, is the mother of all flash crashes, and in a nanosecond it's game over.

Wed, 05/01/2013 - 10:22 | 3517697 LawsofPhysics
LawsofPhysics's picture

Just another walking contradiction, see my post below.  No ways rates can go up without blowing up the American ponzi and the Federal Reserve Bank. It is a "bait and switch".

Wed, 05/01/2013 - 10:29 | 3517718 Dr. Engali
Dr. Engali's picture

I do feel that rates can't go up without killing the system, but what other reason do you use a floating rate note unless you expect rates to go up? I guess the buyers could be people who expect rates to go up, but get suckered into a product that doesn't perform like they anticipate. The fed keeps pressure on rates and the floating rate bonds do nothing.

Wed, 05/01/2013 - 10:31 | 3517745 fonzannoon
fonzannoon's picture

My guess is they don't care what you or I expect. The only thing that matters is you continue to lend them money cheap so they can perpetuate this mess another day. Ask people who owned floating rate bonds a while back how it worked out. Those fuckers manipulated LIBOR forever and there were no reprecussions. Why would there be when these bonds go nowhere?



Wed, 05/01/2013 - 10:23 | 3517689 LawsofPhysics
LawsofPhysics's picture

Please, history is very clear on such bonds, floating rate bonds means they will advertise a positive rate and then (after the herd jumps in) they will change the rate (hence the floating rate) to a negative yield.  That's the wholoe fucking point, no set rate, they can change it whenever they like.  You really think it would be changed to benefit the fucking herd?  Again, you are being an optimist.

Wed, 05/01/2013 - 10:32 | 3517747 Dr. Engali
Dr. Engali's picture

Of course they aren't going to do anything for the herd, but if there is upward pressure on interest rates there won't be a choice but to adjust the rate. The people who buy them are the people who feel that there will be an upward bias on rates.

Wed, 05/01/2013 - 10:50 | 3517830 LawsofPhysics
LawsofPhysics's picture

"but if there is upward pressure on interest rates there won't be a choice but to adjust the rate."  -  There has been such pressure in the "market" since 2000, yet rates have gone down.  The are no "people buying them", that's the fucking problem!!!!!  There is The Fed, and that's it.  Rates have long since uncoupled from reality, if rates go up, America hard defaults immediately (as aopposed to yet another engineered soft default).  Please doc, where the fuck have you been?  Are you saying America will no hard default?  Bold prediction indeed.

Wed, 05/01/2013 - 10:56 | 3517851 fonzannoon
fonzannoon's picture

Doc knows the deal. We all do. We are just talking in circles while the band plays and they rearrange the deck chairs around us.


Wed, 05/01/2013 - 11:00 | 3517881 Dr. Engali
Dr. Engali's picture

Where have I been? Where the fuck have you been? I've been pretty consistent with my message. The S&P should be valued around 400...I've stated that since I first joined fight club. I don't think rates can go up, because it would bankrupt the whole system, but I do think that floating rate notes are catering to people who expect the rates to go up. When the market collapses it won't be like 08..the lack of liquidity and short sellers provide no underlying bid and therefore support which will cause the market vaporize. And finally we will see a major war in the next 5 to 10 years. 

Wed, 05/01/2013 - 11:06 | 3517893 LawsofPhysics
LawsofPhysics's picture

You say "what other reason could their be" yet you can't comphrend this "bait and switch" tactic?  You made the statement not me Doc.  Seems pretty clear to me (and has been done with bunds already) annouce floating rate with initial positive yield, all the sheep jump in, change rate to negative.  Sorry you can't see it.

Wed, 05/01/2013 - 11:11 | 3517914 Dr. Engali
Dr. Engali's picture

When I say what other reason do you use a floating rate note, I'm talking about the investor side of it. Investors buy floating rate notes when they expect rates to go up. I'm not talking about the issuer, I know they are going to try and screw the investor....that's what they do.

Wed, 05/01/2013 - 13:43 | 3518777 andrewp111
andrewp111's picture

Yeah, but the Treasury knows that rates are only going down from here. Rates will never rise again in our lifetimes.

Wed, 05/01/2013 - 15:16 | 3519197 NaN
NaN's picture

Given that the goal of Treasury is to borrow at the lowest cost, they win only if rates never go up, so I think you have a good point.

There is a curious feature where rates are determined by 13 week period, but the instrument itself lasts 2 years. 


Wed, 05/01/2013 - 10:20 | 3517691 SheepDog-One
SheepDog-One's picture

I still don't know even 1 person who owns a gubmint bond.

Wed, 05/01/2013 - 10:22 | 3517700 LawsofPhysics
LawsofPhysics's picture

Many 401ks and institutional investors (pensions) do.

Wed, 05/01/2013 - 10:23 | 3517710 fonzannoon
fonzannoon's picture

Do you know anyone with a 401(k)? Anyone with an annuity?

Trust me we are complicit in this ponzi, whether we know it or not.


Wed, 05/01/2013 - 10:27 | 3517726 SheepDog-One
SheepDog-One's picture

As I said, I don't know any single person who themselves bought a UST...the rest of it is all churning in limbo. 

Now, you know I frequently discuss the '401K Bathrobe Brigades', so the fact that this is all just done 3rd hand in some fund or other is no news to me.

Wed, 05/01/2013 - 10:33 | 3517753 fonzannoon
fonzannoon's picture

well now that you made me actually think about it....I don't know one person either...

I see what you did there.

Wed, 05/01/2013 - 12:28 | 3518385 noless
noless's picture

i might still have one, Id have to check though, kept it for that very reason, potential collectable..

Wed, 05/01/2013 - 10:49 | 3517806 NotApplicable
NotApplicable's picture

My patriotic inlaws bought 'em for years and years. Luckily they retired before ZIRP came along.

Wed, 05/01/2013 - 10:13 | 3517646 fonzannoon
fonzannoon's picture

"The fed minutes released today show a very divided fed commitee. Ben Bernanke stunned the group when he tried to announce his resignation during the meeting. He expressed anger and frustration and smelled of alcohol. He slurred some vulgarities at Senator Chuck Schumer who was not present at the meeting. Janet Yellen slapped Bernanke across the face hard and yelled "Shut up bitch and pull yourself together, Kevin's got this". There was no Kevin at the meeting. At that point Dick Fisher stormed in and tripped over Jim Bullard who was masturbating to a video clip of himself on CNBC and started yelling "I can't get delivery of my GLD! Someone's gonna get their ass kicked up in this place!!"

No formal announcement of any change in policy was officially announced at this time.

Wed, 05/01/2013 - 10:44 | 3517794 short screwed
short screwed's picture

lmao + 1,000

Wed, 05/01/2013 - 11:16 | 3517940 DriveByLurker
DriveByLurker's picture

I miss the old days, when the minutes had an almost epic literary quality:



Wed, 05/01/2013 - 10:04 | 3517610 Bad Attitude
Bad Attitude's picture

Why do they have to call them "FRNs?" This is just going to cause confusion - Federal Reserve Notes or Floating Rate Notes!

Wed, 05/01/2013 - 11:33 | 3518054 viahj
viahj's picture


Wed, 05/01/2013 - 11:47 | 3518168 redpill
redpill's picture

They call them that because they are the same thing since rates will remain zero until this sucker pops and then none of it matters. Therefore it's not any different than holding cash as they would print money to pay off a bond just the same as they would print money to cover your "insured deposit" after FDIC goes bust. We live in a financial world where nothing means anything, an all financial instruments are trending toward absolute correlation. On a long enough timeline...

Wed, 05/01/2013 - 10:07 | 3517627 Downtoolong
Downtoolong's picture

I don’t think this is going to be much of a game changer unless they extend the term out to longer durations.

If the government really wanted to guarantee its money it would offer TIPS at face value in any quantity to anyone who wanted them and stop taxing the phantom inflationary income. Now that would be a game changer. I bet it would eliminate the excess deposits in savings banks right quick too.  

Wed, 05/01/2013 - 10:07 | 3517629 1eyedman
1eyedman's picture

looks like small caps are showing a bit of 'weakness' compared to large caps....dont worry!  we just hit new all time highs yesterday!

Wed, 05/01/2013 - 10:07 | 3517630 Tic tock
Tic tock's picture

'bout time the Treasury turned up

Wed, 05/01/2013 - 10:12 | 3517642 blindman
blindman's picture

what? !!!!!
shut up and drive.
keep stacking !
Open House at My House by Z Z Hill 0001

Wed, 05/01/2013 - 10:15 | 3517654 FubarNation
FubarNation's picture

This will be great. 


"Public note holders.  We have decided that the floating rate for your recently purchased FRN note is -ve 10%.  We will be deducting your payment directly out of your bank account.  Thank you."

Wed, 05/01/2013 - 10:13 | 3517655 Mercury
Mercury's picture

OK, I get the capital loss avoidance regarding outstanding Treasuries but how does this not explode the US Government's borrowing costs and debt service?

Wed, 05/01/2013 - 10:16 | 3517667 Everybodys All ...
Everybodys All American's picture

bingo.  This action is necessary to avoid balance sheet bankruptcy at the Fed.

Wed, 05/01/2013 - 10:25 | 3517715 LawsofPhysics
LawsofPhysics's picture

So the Fed is going to stab the U.S. government in the back?  Time to end the fucking fed and have the U.S. military detain every Federal Reserve Board member, confiscate their wealth and all the wealth of the Federal Reserve Bank, then roll the mother fucking guillotines, sound good to me!!!

Wed, 05/01/2013 - 10:30 | 3517742 blindman
blindman's picture

yea but, the fed is the bad bank stuffed
with fraud and losses.

Wed, 05/01/2013 - 10:42 | 3517776 Everybodys All ...
Everybodys All American's picture

Co- conspirators. The Fed enables the enormous binge spending by the US Treasury via Obama and Congress. End the Fed absoutely. I know I'm not telling you anything new.

Wed, 05/01/2013 - 10:17 | 3517668 SheepDog-One
SheepDog-One's picture

I guess news such as 'a gay in the NBA' somehow negate any real world things such as complete bankruptcy and a 0% rate which will never rise.

Wed, 05/01/2013 - 10:16 | 3517666 mayhem_korner
mayhem_korner's picture



OT...did someone get an early view of the FOMC talks?  Dow is takin' a header even while the USD is weakening...

Wed, 05/01/2013 - 10:17 | 3517675 AynRandFan
AynRandFan's picture

So these are supposed to cushion a collapsing bond market.  Nice.

Wed, 05/01/2013 - 10:33 | 3517743 SheepDog-One
SheepDog-One's picture

Step right up, place ya bets! What could go wrong? Everyones a WINNA!

Wed, 05/01/2013 - 10:47 | 3517807 Yen Cross
Yen Cross's picture

   So let me get this straight. When intrest rates go higher everyone will want FRN's because the face/coupon value stays the same and doesn't fluctuate like fixed rate bonds. So all of the rats will pile from the fixed rate paper into the FRN paper for yield.

   lol, Those kleptocrats have every thieving corner covered!

Wed, 05/01/2013 - 13:39 | 3518763 andrewp111
andrewp111's picture

It just tells you that the issuer doesn't expect rates to ever go up again. This way, they just keep cutting the interest payments during the bond term.

Wed, 05/01/2013 - 10:47 | 3517811 WeekendTrader
WeekendTrader's picture

What is the advantage to issueing FRNs for the gvt? It just introduces more uncertainty both for the issues as well as for the buyer?

What am I missing here?

Wed, 05/01/2013 - 11:17 | 3517920 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

If I am understanding this correctly, the Treasury by issuing these will allow the FED to increase the interest rates on fixed bonds while using these FRN's to rig the aggregate rate on payment dates of all Treasurys issued to keep the government from default?

Wed, 05/01/2013 - 11:33 | 3518068 polo007
polo007's picture

Question: How Is the Fed Monetizing Debt?

Answer: The Federal Reserve is monetizing debt anytime it buys U.S. Treasuries. The Federal government borrows from individuals, corporations and even foreign governments when it auctions Treasury bills, bonds and notes. When the Federal Reserve buys these Treasuries, it doesn't actually have to print money to buy them. It issues a credit, and puts the Treasuries on its balance sheet. Everyone treats the credit just like money, even though no actual cash is printed.

How does this monetize the debt? It turns the debt into money. It takes those Treasuries out of the open auction, which decreases the supply of Treasuries. This means the remaining Treasuries are bid up higher. Treasuries that are more valuable don't have to pay as much in yield to get buyers. A lower yield drives down interest rates on mortgages. The net effect is that it is as if the Treasuries bought by the Fed didn't exist.

But they do exist on the Fed's balance sheet. Technically, the Treasury must pay the Fed back one day. Until then, the Fed has given the Federal government more money to spend and increased the money supply. This is called monetizing the debt.

The Fed only monetizes debt in an emergency, like a recession. It helps the Treasury increase government spending to stimulate the economy without raising interest rates, which would depress the economy. When the economy improves, then the Fed can reverse the transaction, get the Treasuries off of its balance sheet, and remove the credit from the Federal government's operating budget.

Wed, 05/01/2013 - 11:36 | 3518071 R_J
R_J's picture

Ok...someone said to READ the report, but...oh well i still dont understand what they will do or how it will effect the outcome.


Anyone care to explain?



Wed, 05/01/2013 - 11:37 | 3518080 polo007
polo007's picture

Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations.

These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist.

They are the world's central bankers. Every six weeks or so, they gather in Basel, Switzerland, for secret discussions and, to an extent at least, they act in concert.

The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do.

In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents.

The tool they have used to change the world so profoundly is one they alone possess: creating money out of thin air.

There is an economic term for this: quantitative easing. More colloquially, it's called printing money.

Since the great economic meltdown in 2008, these central bankers have probably saved the world's economy from collapse, and dragged it into the unknown at the same time.

The amounts they have created are so vast as to be almost incomprehensible — trillions of dollars in pounds and euros, among other currencies.

At the end of 2012, the balance sheets of the world's largest central banks, those of the G20 nations and the eurozone, including Sweden and Switzerland, totalled $17.4 trillion US, according to Bank of Canada calculations from publicly available data.

What's their legacy?

When the record of the 2008 global financial catastrophe is fully written — that story remains a work in progress — the world's central bankers will emerge either as heroes, or as the people who administered a cure that turned out to be as bad as the disease.

Three of them in particular will go down in history: Ben Bernanke of the U.S. Federal Reserve, Mario Draghi of the European Central Bank, and Canada's own Mark Carney, soon to be the governor of the Bank of England.

That is nearly a quarter of global GDP, and slightly more than double the $8.5 trillion these same institutions were holding at the end of 2007, before the financial crisis hit.

Stock markets have risen on this tide of cheap money. So has real estate. So, arguably, has everything else.

Wed, 05/01/2013 - 11:35 | 3518081 polo007
polo007's picture

Mark Grant sits on the aft deck of his yacht in South Florida's spring sun, ostentatiously relishing his wealth as only an American does, and dispensing advice. He's made his money, and he likes to wear it.

Grant's personality is as big as his mansion and as flashy as his collection of exotic cars — he actually calls himself "The Wizard," a tribute to his own financial acumen.

While we are talking, his cellphone rings intermittently, and the callers are usually serious moneymen. Bill Gross of Pimco, the world's largest bond agency, is a friend; his praise adorns the dust jacket of Grant's recent book.

Inevitably, the callers are seeking investment advice.

A nearly 40-year Wall Street veteran, Grant is currently the managing director of a Texas-based investment bank and the author of a daily must-read investment commentary called Out of the Box.

His advice these days to tycoons and small investors alike is simple and direct. For heaven's sake, seek safety. Preserve your capital. "Keep what you have."

To Grant, the central banks' money printing has distorted the financial universe beyond any sensible dimensions.

The Federal Reserve alone is churning out $85 billion a month, or just over a $1 trillion a year. The combined balance sheets (which reflect created money) for the European Central Bank and the 17 individual banks of the eurozone stand at $3.45 trillion.

Wed, 05/01/2013 - 11:38 | 3518088 polo007
polo007's picture

Hiding the bad news

What these bankers do with this new money they print is buy government debt, or shore up failing banks or teetering national economies or industries like housing or insurance, part of the policy they call quantitative easing.

They say, and many respectable experts support them, that quantitative easing has saved entire economies from imploding.

They also say — high priest-like — that they must keep the details of their discussions secret because their words could be misinterpreted, and entire markets could move on a misunderstanding.

And they stress they are operating entirely within the mandates given them by elected governments.

That's as may be.

It's also true the central bankers did not ask for the immense power they now exercise.

It was thrust upon them because the private sector made enormous, stupid, ruinous blunders, and because elected politicians were too terrified to make all the deeply unpopular decisions, like whether to let more banks fail, that had to be made when the financial meltdown started feeding on itself.

Politicians, given the chance, kick the can down the road; central bankers act.

But because of their mandate to maintain economic stability, they like to hide the bad news, or obscure it with vague euphemisms.

Wed, 05/01/2013 - 11:39 | 3518091 polo007
polo007's picture

The National | Apr 29, 2013 | 20:46

The Monarchs of Money

The world's central banks have printed unimaginable amounts of money in recent years. Neil Macdonald explores what this means for the global economy and for your financial well-being.

Wed, 05/01/2013 - 12:51 | 3518487 el Gallinazo
el Gallinazo's picture

Bloomberg refers to them as "floaters."  Wonder if they will smell like an East River floater?

Wed, 05/01/2013 - 13:18 | 3518626 Fix-ItSilly
Fix-ItSilly's picture

Funny how floating rate notes were not made available when the taxpayer would have saved money.  As Thomas Jefferson so ably stated: 

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Wed, 05/01/2013 - 14:19 | 3518820 NaN
NaN's picture

Are the comment letters public?  Where are they?

 The request for comments:




Commenters are invited to submit views on the following questions:

1. Would FRNs attract new investors into the Treasury market for a sustained period of time?

2. Would a Treasury FRN help meet the investment needs of retail and institutional investors?

3. How liquid would you expect FRNs to be in the secondary markets?

4. What is the ideal structure for a Treasury FRN?

a. What is the ideal final maturity for a Treasury FRN?

b. What are the pros and cons of using the following reference rates for a Treasury FRN: Treasury bills, a Treasury general collateral-based repurchase agreement (“repo”) rate, and the federal funds effective rate? Are there any other reference rates that merit consideration?

c. What would be the appropriate coupon payment frequency of a Treasury FRN?

5. What changes to trading, settlement and accounting systems would be needed to accommodate FRNs?

6. Are there any other operational issues that Treasury should be aware of when deciding on whether to issue FRNs?

7. Given the above considerations, are FRNs a useful debt management tool that Treasury should consider? 


I found this: public comments which contains 16 letters, which appear to be only from big banks and traders.


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