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The New Market for Treasury Floating Rate Notes

Karan Bhanot and Liang Guo
The Journal of Fixed Income Fall 2017, 27 (2) 52-64; DOI: https://doi.org/10.3905/jfi.2017.27.2.052
Karan Bhanot
is a professor of finance in the College of Business Administration at the University of Texas at San Antonio in San Antonio, TX
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Liang Guo
is an assistant professor of finance in the Jack H. Brown College of Business and Public Administration at California State University at San Bernardino in San Bernardino, CA
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Abstract

Treasury Floating Rate Notes (FRNs) were introduced in 2014 as a way to diversify the U.S. Treasury funding base and lower its borrowing costs. Using daily data on all Floating Rate Notes issued from 1/2014 to 10/2016 we find that FRNs deliver a statistically significant excess return relative to the underlying index, as well as relative to other short-term interest rate benchmarks. However, yield spreads with respect to comparable maturity fixed rate Treasuries, quarterly data on auction outcomes, and block holding disclosures by financial institutions support the objectives set forth by the Treasury. Collectively our article provides a perspective on FRN contract features, the return and risk of these instruments, and insight into their clientele.

TOPICS: Fixed income and structured finance, risk management

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The Journal of Fixed Income: 27 (2)
The Journal of Fixed Income
Vol. 27, Issue 2
Fall 2017
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The New Market for Treasury Floating Rate Notes
Karan Bhanot, Liang Guo
The Journal of Fixed Income Sep 2017, 27 (2) 52-64; DOI: 10.3905/jfi.2017.27.2.052

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The New Market for Treasury Floating Rate Notes
Karan Bhanot, Liang Guo
The Journal of Fixed Income Sep 2017, 27 (2) 52-64; DOI: 10.3905/jfi.2017.27.2.052
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  • Article
    • Abstract
    • BACKGROUND: WHAT ARE TREASURY FLOATING RATE NOTES?
    • OBJECTIVES AND EMPIRICAL METHOD
    • DATA
    • SECONDARY MARKET RETURNS AND SPREADS
    • AUCTION OUTCOMES AND LARGE HOLDERS
    • CONCLUSIONS
    • ENDNOTES
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