Demystifying the US Treasury floating rate note puzzle: A swap market perspective

Jungkyu Ahn and Yongkil Ahn

Finance Research Letters, 2022, vol. 50, issue C

Abstract: We compare two versions of the US Treasury floating rate note (FRN) price measured in Treasury auctions and in the swap market. Utilizing a proprietary dataset from J.P. Morgan, we find that the actual US Treasury FRNs are traded in premium in comparison with their synthetic equivalents in the swap market, and the premium amounts to four basis points on average. Moreover, they are priced up by four more basis points when the aggregate fixed income market is in turmoil, confirming that US Treasury FRNs are indeed safe assets, and thus require a price premium ex ante.

Keywords: Floating rate note; Safe asset; Discount margin; Asset swap; Basis swap (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322005396

DOI: 10.1016/j.frl.2022.103362

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