The first new floating rate U.S. Treasury security in 16 years met heavy demand ahead of debt ceiling talks and Fed tightening for the year. Bond investors have been shifting over to floating rate exchange traded funds over the past year and may soon gain exposure to floating-rate public obligations of the U.S. Treasury as well.
The Treasury sold $15 billion floating rate notes and brought in $85 billion in orders, a bid-to-cover of 5.67 times, reports Michael Mackenzie for Financial Times.
Demand will likely pick up in money market funds as they boost yields and avoid potential volatility from fights over the next debt ceiling deadline in March.
“Treasury money market funds are so starved for yield that anything giving them an extra basis point or two, and with the same quality and liquidity features of a Treasury security, means it’s a no brainer for them to own,” Peter Crane, president of Crane Data, said in the article.
The floating rate notes will generate more interest if Treasury prices fall and yields continue to rise, which should play out if the Fed continues to taper its accommodative measures.
Floating rate ETFs have been popularly received over the past year as their low reset period helps diminish risk to rising interest rates.