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RESEARCH CENTER

Floating Rate Notes (FRNs): Rates & Terms

The U.S. Treasury began issuing Floating Rate Notes (FRNs) in January 2014. You can buy them in multiples of $100. The securities have a term of two years.

Price and Interest

The price of an FRN is determined at auction. The price may be greater than, less than, or equal to the FRN's par amount.

The interest rate of an FRN changes, or “floats,” over the life of the FRN. The interest rate is the sum of two components: an index rate and a spread.

  • Index rate. This rate is tied to the highest accepted discount rate of the most recent 13-week Treasury bill. We auction the 13-week bill every week, so the index rate of an FRN is re-set every week.
  • Spread. The spread is a rate we apply to the index rate. The spread stays the same for the life of an FRN. The spread is determined at the auction where the FRN is first offered. The spread is the highest accepted discount margin in that auction.

Calculation

The spread plus the index rate equals the interest rate. We apply the interest rate to an FRN’s par amount on a daily basis; so, the aggregate interest earned to date on an FRN accumulates every day.

Rates in recent auctions

Interest Payments

Floating Rate Notes pay interest quarterly.

Accrued Interest

Sometimes when you buy an FRN, we charge you accrued interest. This is interest the security earned in the current interest period before you took possession of the security.

If we charge accrued interest, we pay it back to you as part of your next interest payment.

Options at Maturity--and Before

You can hold an FRN until it matures or sell it before it matures.

If you hold your FRN in TreasuryDirect and don't sell the security, when it matures you can redeem it or use its proceeds to reinvest into another FRN. If you hold your FRN with a bank or broker, consult the bank or broker for your options at maturity.

Auction Pattern

We auction FRNs each month, with original issues in January, April, July, and October, and reopenings in the other months.