The US government announced that it will begin selling Treasury bonds next year that have variable interest rates; the first such launch in 17 years.
Treasury officials said that the initial offering on 29 January 2014 will be in a range of US$10bn to US$15bn. Auctions will be held monthly and the securities will have a two-year maturity. The rate will be allowed to go up or down and will be pegged to rates on three-month Treasury bills.
The government expects more investors to be drawn to the prospect of earning higher yields if rates go up and is anticipating that the attractiveness of the new security will offset any risk of having to pay more to borrow funds.
The launch of the securities has been planned for two years and is seen providing investors with a security that offers portfolio protection against a background of rising interest rates.
Concerns have recently grown over how the anticipated ending of the Federal Reserve’s U$85bn monthly emergency bond-buying programme will impact on the debt markets, sending the yield on bonds to historic lows
Expectations that the Fed is poised to begin tapering its monetary stimulus have eased after recent less robust US economic data. Once the country’s economic recovery moves up a gear, a move to reduce the pace of monthly purchases by spring 2014 is seen as more likely.
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