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Floating Rate Money? The Stability Premium in Treasury Floating Rate Notes

Matthias Fleckenstein and Francis Longstaff

No 25216, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We identify a significant premium in the prices of Treasury floating rate notes (FRNs) relative to both Treasury bills and notes. This premium is directly related to the near-constant nature of FRN prices and differs from the liquidity and on-the-run premia in Treasury security prices previously documented in the literature. We find that the premium is related to measures reflecting investor demand for safe assets such as market volatility and flows into money market funds. Ironically, some of the variation in FRN prices may actually be due to changes in the premium for their price stability.

JEL-codes: G12 G18 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-mon
Note: AP
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