Floating Rate Notes

IN JANUARY 2014, the U.S. Treasury began selling floating rate notes. The notes have a two-year maturity, with interest paid quarterly. Their yield changes based on the interest rate for 13-week Treasury bills. Through TreasuryDirect, the minimum purchase amount is $100. As with other Treasury bonds and many government agency bonds, the interest is taxable at the federal level, but exempt from state and local taxes.

With short-term interest rates currently so low, the yields on floating rate Treasurys are tiny. But the risk is also modest. Many bond investors fear rising interest rates, because it drives down the price of existing bonds. Yet owners of floating rate notes will benefit from a rise in short-term rates, because it will push up their yield. You can learn more at TreasuryDirect.gov.

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