Here Comes The Treasury Floater

Tyler Durden's picture

It appears from the Treasury's announcements and the Treasury's Borrowing Advisory Committee (TBAC) recommendations that we will shortly see Treasury FRNs. While details remain murky (what maturities, the underlying index, reset frequency, and so on) we would be surprised if they did not after all this analysis and the potential problems they may face. Given the weight of short-dated maturing Treasury debt, if the Treasury were roll/term this debt out at the same pro-rata distribution of maturities as it has currently, then the weighted average maturity of their debt would rise significantly. While avoiding the short-term limit of zero-date issuance that many European sovereigns face is a positive clearly, the problem for the Treasury lies in the non-domestic (read Fed) demand is waning significantly for any longer-dated Treasuries (while bid-to-covers on Bills remain very high and active for foreign buyers). FRNs would implicitly provide the lender with upside coupon on a rise in rates (a potential plus for foreign demand given their angst and the low level of rates priced into the market) and would benefit the Treasury by reducing potential demand issues at the long-end (and potentially offering the Treasury upside if rates stayed low for longer). The bottom line is that the structural decline in the stock of global high-quality government bonds, coupled with an increase in demand for non-volatile liquid assets, should make U.S. government issued FRNs extremely attractive. Of course, the benefits to the Treasury from issuing FRNs also relies significantly on the Fed's monetary policy stance - savings are likely to be greater when the change in the funds rate is negative, and especially when such change is more negative than the expectations priced into forwards (and it seems reasonable to assume that the risk to short-rates is somewhat one-sided against the Treasury FRN).

The weighted-average maturity of Treaury debt will rise significantly (above) if current debt is termed out at the current distribution of maturities and that could be a problem (below) given the changes in demand for longer-term Treasury debt (especially if we remove the Fed from the picture). Treasury FRNs could fill this gap with short (say 2-3Y) maturity deals that have attractiveupside potential for foreign and domestic buyers...or perhaps it is a confirming signal from the Treasury that rates will be super low for a super long time.


And here is the full TBAC Treasury FRN Pitchbook:


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Jim in MN's picture

Great!  Just make sure they are backed by gold.  They might even be Constitutionally legal then.

trav7777's picture

IDIOT!  Gold pays NO COUPON.

Oh yeah, neither do treasuries...fuck, well...carry on then.

nope-1004's picture

Better to be backed by the "full faith and credit of the US" than old barbaric gold.

LOL.  More ponzinomics at play.


Cadavre's picture

Just make sure they are backed by gold.

They be backed by a "standard" more reliable than gold grasshopper: "the full faith and credit of the United States" .. ahem ...

What a racket - the mob family running the DoT and FED PONZI for the Kosher Nostra, who, BTW, is also incharge of global market rate fixing, will [now] also market "floaters" (something else comes to mind, don't it?) to float against their rigged rates.

... and ... Why didn't I think of that? Nuth`n from Nuth`n = Nuth`n

Note they invented Tiered Indexed Bonds as "inflation protection" and then - THEN - re-spec`d the inflation calculation to exclude spiraling food and energy prices.

What a f*ing racket - and in plain view for everyone to see - ya juz gotz to love da chutzpa of dem 3 piece boardroom welfare queens!


PIMCO just loaded up their port with a bunch of UST paper.

Matt's picture

Gold Perpetual Annuities: Pay $100,000 now, and get one ounce of gold a year, every year, forever. The Keynesians don't believe in gold, so they should agree to go ahead with this plan and start issuing them immediatly.

lolmao500's picture

So they have found ANOTHER trick to kick the can down the road for years to come.

Fuck this shit, I'm giving up.

hedgeless_horseman's picture



There has never been
a better time
to borrow money
on an adjustable rate mortgage!

Rates will not go up
for a very long time!

We promise!

If they do go up,
then you can always refinance
into a fixed rate!

Everyone is doing it!

trav7777's picture

Can I borrow at negative rates?  Because I will buy a house then

Hansel's picture

I'd like to borrow $10 million at -10% interest so I can buy a $1 million house too.

francis_sawyer's picture

I'd like to re-fi that as well and buy a yacht with it... Then, I'll re-fi the yacht & fill it with Ukranian hookers...

viahj's picture

don't forget the Columbian Snow

FOC 1183's picture

the Fed has purchased 91% of Treasury issuance of 20 years or longer since October 1st. CIRCLEJERK

francis_sawyer's picture

oh that's just the TOP VIEW 2 dimensional look at the CIRCLEJERK...

Wait until they flip it on its side and you find out it's a double helix in 3D

AC_Doctor's picture

I am sure that the retired with cash and pension funds will be thrilled.  The bond bubble will blow apart like the tech bubble did causing 100x the damage and draining TRILLIONS of wealth from investors here and abroad.

alien-IQ's picture

that's not the concern...that's the plan.

but they aren't going to wipe out trillions of dollars...they are going to merely "transfer" that wealth.

trav7777's picture

It's not real wealth, dude.  Bonds are a claim ticket on a future that can't pay.

They're effectively worthless.  The UST complex is held together by petrodollars and our military.

GeneMarchbanks's picture

Kind of. You could say the military holds together the petrodollar which then in turn allows Geithner all kinds of lee-way to be the retard that he is. Matters not, operation: hang-the-capitalists-with-the-rope-they-themselves-purchased, is almost complete.

TruthInSunshine's picture

And in other break-it-again-Timmy news, 750 bank failures is the 'optimistic' scenario:

Over 750 Banks at Risk of Failure over Next Two Years, Says Invictus

Number is Nearly Double Total Banks That Failed in Past Three Years

NEW YORK--(BUSINESS WIRE)--Despite last year’s decline in US bank failures, at least 758 lending institutions are at risk of failure over the next two years, according to an analysis by Invictus Consulting Group, which conducts stress and sustainability tests on all FDIC-insured banks for regulators, banks and investors.


“Borrowers will simply run out of time and resources”


Based on all publicly available data on banks for the third quarter ended September 30, 2011, Invictus said that absent corrective action to raise capital or merge, the 758 banks are unlikely to remain viable. This is primarily due to the weak recovery, which could trigger a new wave of loan defaults. Approximately 200 of these banks are subsidiaries of publicly-traded bank holding companies.


I think 750 banks failing (including a number of banks in Florida that hold 25% of all Florida deposits) is actually truly optimistic, given that The Bernank has broken the markets and banks traditional profit model. The general public hasn't the faintest idea as to how incredibly stressed financial lending institutions are (with the exception of the best friends of William Dudley and the NYC branch of the Fed).

jm's picture

If they offer long duration, maybe it's a move to attract duration money away from those swaps.  

alien-IQ's picture

sounds like a game of three card monte.

who wants to play?

Manthong's picture

Confidence check time.

What good is a Treasury Note from a treasury with no treasure, a receding economy and a shrinking tax base from the serfs?

fuu's picture

Can we harness this perpetual motion machine for electricity? If we can then the promised land of Unicorns and Virgin Princesses will be reached.

Kaiser Sousa's picture

i dont get this shit...r we talking about a new type of govt. bond/treasury note...different from the worthless shit they already offer ad infintum???

and if so, who would want this new worthless crap and why???

somebody, me out....

dracos_ghost's picture

I'm cornfused too. Unless they are telegraphing massive deflation for an extended period. Why not just buy TIPS?

Sounds like a round about way to initiate the "R" Bond strategy.

It is concerning that this is a Treasury sales pitch. De facto coup d'etat for the President? He don't need no stinking Congress. He prints his own money.

LawsofPhysics's picture

Explain TIPS to us all and I will consider your proposal.

dracos_ghost's picture


And it's not a proposal. I don't understand the value add of what's being pitched above versus what is already offered.

scatterbrains's picture

Does this allow for a bigger cave to hide in and thus remove some demand for gold as a safe haven ? no clue here.

spanish inquisition's picture

HAHA "Floater" - Very nice. This is a Caddy Shack "Everyone out of the pool" reference, no?

GCT's picture

If they increase the interest rate in say 2014, what happpens to these bonds or those invested in them?  I am not invested in them but it looks like they will never raise the interest rates for people doing the right thing. 

Won't all of this blow up if they do raise interest rates?

Hansel's picture

Yes, it would all blow up if the Fed raised interest rates, which is why they will never raise rates again.

DaveyJones's picture

Don't get it either. Is it called a floater because it resembles a bowel movement?

Random_Robert's picture

So, Nabisco offers a 30 cents off coupon on Wheat Thins, and the coupons become so popular that Nabico's competitors begin selling the Nabisco coupons, and issuing their own 10 cent off coupon on the price of the Nabisco 30 cent off coupon....

Do I have that right?

The coolest thing about Ponzi-nomics to me is the fundamental nature of infinity.... 

LongSoupLine's picture



I have a better idea...why doesn't the Treasury pass a law that confiscates all taxpayer savings, then drops it in the Rus2000!


Oh, wait...nevermind...that IS what they're doing.

LiquidityandLunacy's picture

I thought all the treasuries were floaters, just like what I produce...

SDRII's picture

How predictably accurate has the forward curve been inside the crisis vs. outside (03-07)?

Kokulakai's picture


Call it anything they like, but.......

A rose by another name would smell as desperate.

Apocalicious's picture

I've never heard a glut of shitty credits expressed as a shortage of high quality credits. Brilliant double-speak again, guys. Absolutely brilliant...

whoopsing's picture

How can risk of default be less than zero?

forexer's picture

Part of the FED's esoteric agenda to avert a hard landing.


yogibear's picture

Time to transfer what's left of your US dollars out of the US.  Before the US puts a stop to it.