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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.”