PUBLIC SUBMISSION

As of: April 19, 2012
Received: April 18, 2012
Status: Pending_Post
Tracking No. 80ff371f
Comments Due: April 18, 2012
  Late comments are accepted
Submission Type: Web

Docket: BPD-2012-0001
Floating-Rate Notes

Comment On: BPD-2012-0001-0001
Public Input on the Development and Potential Issuance of Treasury Floating Rate Notes

Document: BPD-2012-0001-DRAFT-0010
Comment on FR Doc # N/A


Submitter Information

Name: Winthrop Treynor Smith
Address:

9912 W Athens Lane
Littleton,  CO,  80127

Email: wtsmith@winanalytics.com
Phone: (303) 883-2535
Submitter's Representative: Winthrop Smith
Organization: Win Analytics LLC
Government Agency Type: Federal
Government Agency: TREAS

General Comment

One of the reasons given in support of issuing FRNs is that they could help the Treasury achieve one of its goals: to increase the average maturity of its marketable debt.
A longer average maturity would mean that the debt would not need to be refinanced as frequently and so there would be less rollover risk.
Rollover risk for fixed-rate debt includes both liquidity risk and interest rate risk, but rollover risk for floating-rate debt is only liquidity risk. The interest rate risk for floaters is present at every reset date.
Increasing the average maturity with FRNs could create the impression that interest rate risk is being reduced when it is actually being increased.
If the Treasury decides to issue FRNs, it should consider whether it is appropriate to continue to use average maturity as an indicator of interest rate risk. It might want to use a new measure of that risk, as discussed in my article:
http://seekingalpha.com/article/390161-treasury-floaters-muddy-the-waters