TREASURY MARKETABLE SECURITIES

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Floating Rate Note (FRN)

On July 31, 2013, the U.S. Treasury published amendments to its marketable securities auction rules to accommodate the auction and issuance of a Floating Rate Note (FRN). These securities complement Treasury’s other marketable securities: Treasury bills, notes, bonds, and inflation-protected securities (TIPS). See Floating Rate Notes in the Amendments section of the Auction Regulations.

An FRN is a security that has an interest payment that can change over time. As interest rates rise, the security’s interest payments will increase. Similarly, as interest rates fall, the security’s interest payments will decrease. Treasury FRNs will be indexed to the most recent 13-week Treasury bill auction High Rate prior to the lockout period, which is the highest accepted discount rate in a Treasury bill auction.

Treasury’s introduction of FRNs provide a number of benefits, including:

  • assisting Treasury in managing the maturity profile of the nation’s marketable debt outstanding,
  • expanding Treasury’s investor base, and
  • helping to finance the government at the lowest cost over time.

For tentative auction dates, see the Tentative Auction Schedule. For scheduled auction dates, see the Upcoming Treasury Marketable Securities Auctions. You may also sign up for e-mail notification of upcoming auctions.

Auction Frequency

  • The 2-year FRNs are auctioned in January, April, July, and October.
  • 2-year FRNs are also auctioned as reopenings in February, March, May, June, August, September, November, and December. The reopened security has the same maturity date, spread, and interest payment dates as the original security, but has a different issue date and usually a different price.

For tentative auction dates, see the Tentative Auction Schedule. For scheduled auction dates, see the Upcoming Treasury Marketable Securities Auctions. You may also sign up for e-mail notification of upcoming auctions.

Bidding

Auction bids for Treasury securities may be submitted as noncompetitive or competitive.

  • With a noncompetitive bid, a bidder agrees to accept the high discount margin determined at auction. A bidder is guaranteed to receive the full amount of their bid for a security as long as they are in full compliance with the Uniform Offering Circular (UOC).
  • With a competitive bid, a bidder specifies the discount margin that they are willing to accept for a particular security. This bid may be fully awarded if the discount margin specified is less than the high discount margin set by the auction, partially awarded if the discount margin specified is equal to the high discount margin, or not awarded if the discount margin specified is above the high discount margin set at the auction.

Methods of Purchase

To place a noncompetitive bid in an FRN auction, individuals and various types of entities including trusts, estates, corporations, partnerships, etc. may use TreasuryDirect. Individuals, organizations, fiduciaries, and corporate investors may use a broker, or financial institution.

To place a competitive bid in an FRN auction, a bidder must use a broker, participating financial institution, or have an established TAAPS account.

 

at a glance
Original issue rate: The spread determined at auction.
See rates in recent auctions
Minimum purchase: $100
Maximum purchase: Non-competitive: $5 million
Competitive: 35% of offering amount
(see types of bidding)
Investment increment: Multiples of $100
Issue method: Electronic

 

Redeem, Reinvest, or Sell

Like other marketable securities, FRNs can be held to maturity or sold before it matures. View more information on how to redeem, reinvest, or sell FRNs.

Tax Considerations

Interest on Floating Rate Notes is exempt from state and local taxes but is subject to federal tax. Read more about tax considerations.