1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 1/17
Sign InRegisterBloomberg.com Businessw eek.com Bloomberg TV
Bloomberg BusinessweekGo To Businessweek.com
Sign in with Facebook Or use your Businessweek account
Email Password Forgot password?
Remember me Sign In
Already a Bloomberg.com user?
Sign in with the same account.
Don't have an account? Sign up.
Help! I can't access my account.
Bloomberg Businessweek
News From Bloomberg
Search
Follow @BW
Global Economics
Matt Damon Gets a Davos Award—for Water, Not Film
The Oscar winner, recognized for co-founding Water.org, was one of four recipients of the World Economic Forum’s Crystal Award
Global Economics
What’s Next for Mohamed El-Erian?
Fernando on Sri Lanka Economy, Market Outlook
Israel Ultra-Orthodox Targeted to Help Economy
The World's Freest Economy Is Also Its Least-Affordable Housing Market
Recent
In Davos, Soros and Others Focus on Syria
Japan's Dolphin Hunt Ends for the Year—as Its Whale Hunt Continues
China's Elite Wealth in Offshore Tax Havens, Leaked Files Show
Lloyd Blankfein Was a History Major. Just Sayin'
330kLike
Premium
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 2/17
China's Five-Star Hotels Are Desperate for Lower Ratings
Sections
2014 Outlook
China
EnergyEurope
Global EconomicsHousing
India
JobsU.S. Economy
Blog: EconochatCompanies & Industries
Honda and Harley Pitch Smaller Bikes for Less Badass Riders
The motorcycle makers, along with rivals Kawasaki and Suzuki, are focusing on a younger generation of riders
Companies & Industries
Marriott Plans to Open Hotels in Kenya: CEO
Amazon Denies Creation of Streaming TV Service
Boeing Expects to Send 140 Planes to China
If Not Bill Gates, Who’s Right for Microsoft?
Recent
Nest's Tony Fadell Keeps His Cool as Google Deal Brings Heat
Big Cable Merger Jousting Enters Public Sniping Phase
Beer-Flavored Jelly Bellys—You Know, for Dudes
How Intel's Brave TV Gambit Went Wrong
Canadians Didn't Trust Target Even Before the Data Breach
Sections
2014 OutlookAutos
SportsCompany ResearchEnergyExecutive Research
Health CareJob Search
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 3/17
ManufacturingMarketing
TelecommunicationsTransportationBlog: The Management Blog
Politics & Policy
Austerity Comes Home to Roost for Metro Washington Economy
Metro Washington is searching for growth now that the federal government is shrinking
Politics & Policy
Virginia Backtracks on Its Hybrid Car Tax
Public Funding for Higher Ed Hasn't Really Bounced Back
How Killing Unemployment Benefits Could Kill Economic Growth
New Polar Vortex: NYC Preps for 10 Inches of Snow
Recent
Bike Sharing Crashes in Canada
NATO Builds a Pricey New Home, Complete With Cost Overruns
China Aims for Food Security as Pollution Destroys Crop Land
Let's Try Giving 'Net Neutrality' a Less Boring Name
Why Wal-Mart Just Gave a Raise to Tomato Pickers
Sections
2014 OutlookCongressCourts
LegislationWhite HouseBlog: Josh Green on Politics
Technology
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 4/17
Hackers Get Personal With Bespoke Malware Attacks
Malicious software e-mailed to the Electronic Frontier Foundation via a server used in Vietnam-related attacks unveils a neat hacker trick
Technology
The Key to Your Digital Life You Know Nothing About
WhatsApp: 430M Users and Counting
Verizon Pitches Its Wireless Network to Remote Oil Drillers
Enterprise Tech
Recent
Nest's Tony Fadell Keeps His Cool as Google Deal Brings Heat
Caught on E-Mail: A Decade of Schemes Discussed Digitally
How Intel's Brave TV Gambit Went Wrong
Old-Fangled ATMs Get Reprieve on Windows Deadline
How to Turn Selfies (and Puppies) Into High-End Retail Sales
Sections
2014 OutlookAppleApps & Software
Enterprise TechConsumer ElectronicsFacebookGoogleMobile & TelecomPersonal TechnologyScience & Research
Social MediaMarkets & Finance
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 5/17
Why Delta, With Huge Profits, Won't Pay Taxes for Years
Delta Air Lines can use past financial losses to offset future taxes, and figures its benefit is $8 billion
Markets & Finance
Why 2014 Will Be the Year of the Stock Picker
Ken Rogoff: European Austerity Is Overrated
UBS's Weber Sees Slower Dynamics in Equity Markets
IMF's Helbling on Global Economic Outlook, BOJ
Recent
Lloyd Blankfein Was a History Major. Just Sayin'
SAC, Mathew Martoma, And The Art Of Cross Examination
Old-Fangled ATMs Get Reprieve on Windows Deadline
The World's Freest Economy Is Also Its Least-Affordable Housing Market
AB InBev Gulps Down Korea's Top Brewery in Global Revival
Sections
2014 OutlookBanksCommoditiesCurrenciesHedge FundsInvesting
Mutual Funds & ETFsPrivate EquityReal EstateStocks & BondsTaxesWall Street
Innovation & Design
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 6/17
Corning Aims to Improve Its Gorilla Glass Screens
The glassmaker spends big to keep its lead in smartphone displays
Innovation & Design
Motorcycle of the Future: Meet the Tesla of Bikes
Has the U.S. Lost Its Innovation Edge?
How to Turn Selfies (and Puppies) Into High-End Retail Sales
Luxury Car Makers Bet on Lower-Priced Rides
Recent
Honda and Harley Pitch Smaller Bikes for Less Badass Riders
LiquiGlide, a Container Coating to Ease Ketchup's Flow
Detroit Auto Show Recap: Small Trucks Are Getting Big and More
Security Expert Bruce Schneier Says to Foil NSA Spies, Encrypt Everything
Illumina's New Low-Cost Genome Machine Will Change Health Care Forever
Sections
2014 Outlook
ArchitectureCopyright
DesignFix This/Workplace
Innovators
PatentsPrivacy
Reinventing BusinessTrademarks
Blog: Very Near FutureLifestyle
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 7/17
Beer-Flavored Jelly Bellys—You Know, for Dudes
The candy maker launches beer and chocolate-covered Tabasco jelly beans for men
Lifestyle
This $170M Hotel Keeps Rich and Powerful Super Safe
Would You Legally Change Your Name for Free Stuff?
The Player: Secrets of a Vegas Whale
Let It Snow: The Makers of De-Icing Fluid Are Having a Superb Winter
Recent
How Intel's Brave TV Gambit Went Wrong
Matt Damon Gets a Davos Award—for Water, Not Film
Honda and Harley Pitch Smaller Bikes for Less Badass Riders
Jack Ryan Becomes the AARP's Latest Poster Boy
Bike Sharing Crashes in Canada
Sections
2014 Outlook
BooksEntertainment
FashionFood & Drink
Gadgets & AccessoriesHard Choices
Next Life
SportsTravel
WorkplaceBusiness Schools
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 8/17
Public Funding for Higher Ed Hasn't Really Bounced Back
In real dollars, state funding per college student in the U.S. still falls more than 16 percent short of its pre-recession peak
Business Schools
4 Big Myths About Starting Your Own Company
Academics Are Down on MOOCs. Business Schools Aren't
Why You Shouldn’t Set Goals for the SAT
Sheryl Sandberg's New Book: Lean In For Graduates
Recent
Stanford GSB Names New Career Services Director
A Universal Template for the GMAT Essay: Part I
Yale SOM Opens New Space, May Add Students to Fill It
Student Loans, the Next Big Threat to the U.S. Economy?
Doing the Most with the Least on Data Sufficiency
Sections
2014 OutlookFinancial Aid
Finding a JobForums
MBA Admissions
Rankings & ProfilesSchool Finder
Undergrad ProgramsBlog: Getting In
Test Prep CenterSmall Business
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 9/17
Dealing With Customers Who Abuse Return Policies
Retail consultants’ prescriptions vary for stopping people from taking advantage of retailers and manufacturers
Small Business
Obama Nominates Maria Contreras-Sweet to Lead SBA
Chinese Small-Caps May Outperform in 2014
Is There a Bubble in Venture Capital?
AngelList, the Social Network for Startups
Recent
Seattle’s Minimum Wage, Borrowing Too Much, Productivity Hacks: Jan. 22
A Contest Boosts a Startup That Makes Jeans for the Disabled
Some Entrepreneurs Are Happier Than the Rest of Us. Which Ones?
Radio: It's Been Slow Going for Obamacare SHOPs
Merchandise on Spotify, Marketing a Boring Business, Super Bowl Prep: Jan. 21
Sections
2014 OutlookAdvice
BenefitsBlog: The New Entrepreneur
Commentary
Expanding OverseasFinancing
LogisticsMarketing
PolicyProfiles
Smart Answers
TaxesTechnology
ToolkitVideo & Multimedia
Slideshows
Martha Stewart: A Career Timeline
Inequality in the State of the Union Address Since 1796
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 10/17
Look Who’s Coming to Davos
Kanye West's Fashion Forays: Hits, Flops, O ther
Photo Essays
Cambodia's Garment Factory Workers Strike
Lusatian Lakeland
Charts
The War on Poverty's Grim Status
Analyst Calls Matter Under These Market Conditions
Videos
Matt Damon's First Impressions of Davos
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 11/17
This $170M Hotel Keeps Rich and Powerful Super Safe
The Best Countries for Business in 2014
Amazon Denies Creation of Streaming TV Service
Bloomberg News
Floating Notes Debut in U.S as Cash Chases Fewer Securities (1)
By Kasia Klimasinska and Liz Capo McCormick January 22, 2014
A man walks past the U.S. Treasury in Washington, D.C. Photographer: Andrew Harrer/Bloomberg
The U.S. Treasury Department’s floating-rate notes may generate strong investor demand given a scarcity of money-market securities and a looming debt limit that’s
accelerating a decline in bill supply.
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 12/17
Floaters would be the Treasury’s first new security in 17 years. Details of the inaugural sale of the two-year notes Jan. 29 will be announced tomorrow even as
legislation on the nation’s borrowing limit causes the Treasury to scale back on bill sales and as dealers reduce activity in the repurchase agreement market.
“With money-market mutual fund assets at the highest in the last few years and supply at relatively low levels, there is more cash chasing less securities,” said Andrew
Hollenhorst, a fixed-income strategist in New York at Citigroup Inc., a primary dealer required to bid at the auction. “There is more cash now in the money funds and
less investable assets on the supply side -- both of which should support demand at the Treasury’s auction this month.”
Story: Want to Snag a Year-End Bargain? Try These Seven Oversupplied Cars
The confluence of less supply and robust demand may help counter risk that the Treasury’s financing costs will rise as faster economic growth boosts interest rates.Critics including Campbell Harvey, a professor at the Fuqua School of Business at Duke University in Durham, North Carolina, argue that the government is ill-
advised to sell floaters now with borrowing costs near record lows. Harvey proposed the government sell floaters about two decades ago.
Inflation Hedge
The new kind of debt offers investors a short-term security that’s a hedge against a potential rise in interest rates. The securities are considered short term becausethey are benchmarked to a short-term index -- the high rate from a 13-week bill. The rate at which interest will accrue on the notes will be re-set daily.
For the Treasury, the goal is to provide additional debt that appeals to investors. Debt managers plan to auction them monthly, with four new offerings a year and two
reopenings each. The move is an addition to its strategy over the past few years of locking in near-record low rates by issuing longer-term debt.
Story: The Big Issues Facing Fed Chair Janet Yellen
“It is very difficult to make a convincing case that the time is right to sell floating-rate debt,” Harvey said in an interview yesterday. With the Federal Reserve tapering
its bond-buying program, “the Treasury should be locking in low, fixed interest rates for their debt.”
In 1993, when Harvey recommended the debt, Treasury 10-year notes yielded about 6 percent and the Fed’s target rate for overnight loans between banks was 3percent. The federal funds rate target has been zero to 0.25 percent since December 2008, and the 10-year yield was 2.85 percent at 9:02 a.m. in New York.
Rate Risk
The Treasury is already exposed to short-term interest-rate risk, because it must regularly roll over maturing bills. If rates rise, the new debt will be issued at higherrates. By swapping some of the bill issuance for floating-rate notes, the Treasury is getting the advantage of a longer-term debt instrument with a similar interest-rate
risk.
Story: The Bitcoin-Mining Arms Race Heats Up
The market should demonstrate sufficient demand, said Joe Abate, a money-market strategist in New York at primary dealer Barclays Plc.
“These two-year floaters were designed with money fund investors in mind,”Abate said on Jan. 14. The money-market funds “could absorb the entire issuance set tocome this year,” he said.
Assets in taxable money-market mutual funds have risen 5 percent to $2.427 trillion over approximately the six months ending Jan. 7, according to data compiled by
fund research firm iMoneyNet in Westborough, Massachusetts, and published Jan. 7.
Blog: Nine Big Questions Main Street Will Be Asking in 2014
Narrow Spread
High demand will translate into floaters having a “fairly narrow” spread of about eight basis points, or 0.08 percentage point, over three-month Treasury bills,according to Abate.
With about $8 trillion of debt auctioned last year, the U.S. is the world’s largest debt issuer. Besides asset managers, investors willing to buy the floaters might includecorporate Treasurers, municipalities and government-sponsored enterprises and central banks, said Fidelity Investments senior Vice President Karthik Ramanathan, aformer Treasury debt management director.
Demand for the safest short-term investments has increased in recent years as investors and institutions respond to more stringent liquidity and capital standards
imposed by regulators aiming to reduce the risk of another financial crisis.
Blog: Congress Wakes Up to the Bad News About Biofuels
Debt Limit
When it suspended the U.S. debt limit until Feb. 7, Congress obliged Treasury Secretary Jacob J. Lew not to borrow more than he needs to fund governmentoperations. To meet that obligation, the Treasury will aim to bring its cash balance on Feb. 7 to the level no higher than it was at when the suspension began, LouisCrandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, said in an interview.
Analysts predict that in order to bring down the cash balance, the Treasury will limit the supply of bills as Feb. 7 approaches.
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 13/17
Additionally, after increasing bill issuance to fund emergency programs during the financial crisis, the Treasury has cut sales of short-term debt as it pushed to lock inrecord low rates over the longer term.
After reaching a near quarter-century low in March 2009 at 49.4 months, the average maturity of the government’s debt has risen to 67 months. Treasury bills,securities due in a year or less, are down to $1.59 trillion outstanding from a peak of $2.1 trillion August 2009.
Bank Regulation
Rising interest rates and heightened global bank regulation will make the U.S. tri-party repurchase agreement market -- another favored investment of money funds --continue to contract in 2014, according to Fitch Ratings. The value of securities outstanding in the tri-party repo market shrank 14 percent in 2013 to $1.61 trillion,according to Fitch.
Repos are transactions used by the Fed’s primary dealers for short-term funding, with money-market mutual funds typically the cash providers. In a tri-partyarrangement, a third party, one of two clearing banks, functions as the agent for the transaction and holds the security as collateral.
Amid rising need for safe collateral, and inflows of cash to money funds, demand for bills has risen at the government’s auctions. Investors bid an average of $4.50
for every dollar of six-month Treasury bills offered at auctions over the past three years, compared with a bid-to-cover ratio that averaged $2.20 during the threeyears prior to 2007.
The Treasury estimates floaters will represent about 2 percent of its debt portfolio by the end of fiscal 2016. The share of bills in the portfolio will decline to 10.4percent in 2016 from 13.2 percent in 2013, the Treasury said in a Nov. presentation.
Three years in development, they are the first new U.S. government debt securities since Treasury Inflation-Protected Securities were introduced in 1997.
Japan and Italy have also been offering floating-rate notes.
To contact the reporters on this story: Kasia Klimasinska in Washington at [email protected]; Liz Capo McCormick in New York at
To contact the editor responsible for this story: Chris Wellisz at [email protected]
Previous 12 Next
From The Web by TaboolaSponsored Content
What the Bible Says About
Money (Shocking)
Moneynews
88 Year Old Yoga Teacher
Shares Her Secret To
Never Ending Energy
Health 1st
Feeding, Sleeping, Diaper
Changes - What to Expect
During Week 1
Health Guru
Nine Comments That
Could Get You Fired
Monster
The 8 Biggest Film Box
Office Disasters of All
Time
Wall St. Cheat Sheet
50 States, 50 Sandwiches
Zagat
The Fishtail Braid in 5 Easy
Steps. Check it out.
SearsStyle
12 Jobs On The Brink Of
Extinction
Salary.com
More From The Web From Businessweek
Pastor Mocked for His ‘Biblical Money Code,’ Gets Last Laugh (Moneynew s)
88 Year Old Yoga Teacher Shares Her Secret To Never Ending Energy (Health 1st)
25 Fuel Efficient Cars That Are Not Hybrids (MPG-O-Matic)
8 Most Useless Workouts Ever (WorkoutPlan)
The Richest Celebrities According to Net Worth (SheBudgets)
The World's Biggest, Fastest, Priciest Private Jet
Can Playstation 4 Save Sony?
Digging Into Obamacare’s Technical Troubles
JPMorgan's Quinsee on Stocks, Market Strategy
G4S First-Half Profit Plunges 73%
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 14/17
LIMITED-TIME OFFER SUBSCRIBE NOW
0 comments
Start the discussion…
Best Community Login Share
Be the first to comment.
Subscribe Add Disqus to your site
0
Read this next
Has the U.S. Lost Its Innovation Edge?
Feed Most Popular
ReadSharedDiscussed
The Waste and Corruption of Vladimir Putin's 2014 Winter OlympicsChinese Smog Reaches All the Way to Los AngelesChina's Five-Star Hotels Are Desperate for Lower Ratings
The World’s 85 Richest Are Now Worth as Much as 3.5 Billion PoorestWhy Delta, With Huge Profits, Won't Pay Taxes for Years
The World’s 85 Richest Are Now Worth as Much as 3.5 Billion PoorestSuper Bowl Ad Insanity Explained in Six Charts
Chinese Smog Reaches All the Way to Los AngelesBeer-Flavored Jelly Bellys—You Know, for DudesHow to Turn Selfies (and Puppies) Into High-End Retail Sales
Four Blunt Points About UNC, College Sports, and Academic CorruptionStudent Loans, the Next Big Threat to the U.S. Economy?The World's 85 Richest Now Worth as Much as 3.5 Billion Poorest
Solving the Net Neutrality Problem Is Actually Very, Very SimpleHow Killing Unemployment Benefits Could Kill Economic Growth
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 15/17
Bloomberg Businessweek
In Davos, Soros and Others Focus on Syria
Nest's Tony Fadell Keeps His Cool as Google Deal Brings Heat
Caught on E-Mail: A Decade of Schemes Discussed Digitally
Davos Elite: World Economic Forum Billionaires
Japan's Dolphin Hunt Ends for the Year—as Its Whale Hunt Continues
China's Elite Wealth in Offshore Tax Havens, Leaked Files Show
Imax Investing $50 Million in Laser Projection: CEO
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 16/17
Lloyd Blankfein Was a History Major. Just Sayin'
Rubenstein: Plenty of PE Investing Opportunities
SAC, Mathew Martoma, And The Art Of Cross Examination
Ads by Google
Small Business Funding10K-500k Loans. No Startups. No Upfront Costs. Get Approved!www.wallfunding.comTD Ameritrade: OfficialNo Platform Fees. No Data Fees. No Trade Minimums. Get Trade Architecttdameritrade.comFind Angel Investors40,000+ Angel Investors use Gust! 1 application - Accepted worldwide.www.gust.com
Bloomberg Businessweek special reports offervaluable perspectives and analysis. Visit today tojoin an important business conversation.
Social
Follow us on TwitterJoin us on FacebookConnect with us on LinkedIn
Subscribe to Bloomberg BusinessweekBloomberg
Links
Our Company
1/22/2014 Floating Notes Debut in U.S as Cash Chases Fewer Securities (1) - Businessweek
http://www.businessweek.com/news/2014-01-22/floating-notes-debut-in-u-dot-s-as-more-cash-chases-fewer-securities 17/17
AdvertisingCareersContent LicensingFeedback
Custom PublishingManage Subscription
Mobile
NewslettersPrivacy PolicyReprints & Permissions
SitemapTerms of Use[+] Rate This Page
Get Businessweek Delivered
He's Got Next
Subscribe
©2014 Bloomberg L.P. All Rights Reserved. Made in NYC Ad Choices
Activate to launch comment card