The pricing of U.S. Treasury floating rate notes

Jonathan S. Hartley and Urban Jermann

Journal of Financial Economics, 2024, vol. 155, issue C

Abstract: Since January 2014, the U.S. Treasury has been issuing floating rate notes (FRNs). These notes pay quarterly interest based on an average of the constant maturity rates of newly issued three-month T-bills during the quarter. We show how to price such FRNs. We estimate that they have been paying excess interest between 3 and 42 basis points above the implied interest of other Treasury securities. We interpret this fact through the lens of a model where money-like assets differ in their degrees of moneyness. Additional empirical evidence supports this interpretation.

Keywords: Floating rate notes; Government debt; Fixed income arbitrage (search for similar items in EconPapers)
JEL-codes: E4 G12 H63 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:155:y:2024:i:c:s0304405x24000564

DOI: 10.1016/j.jfineco.2024.103833

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