What is a Treasury floating rate note?

Drafted with AI assistance from official sources; checked against the sources listed below.

A Treasury floating rate note (FRN) is a two-year note whose interest changes every week. It pays the latest 13-week bill auction rate plus a fixed spread, and that spread is set at the FRN's first auction.

How the interest is worked out

The index is the high discount rate of the most recent 13-week bill auction, turned into a money market yield. Each day the note earns the index plus the spread, and the interest is paid every three months. If the sum is ever below zero, the day earns nothing.

What the auction sets

Bidders do not bid a yield. They bid a discount margin: the spread they want over the index. The high discount margin is the highest one Treasury accepted, and every winning bidder gets it, as in any single-price auction.

• At a new issue, the high discount margin becomes the note's fixed spread for its whole life.
• At a reopening, the spread is already fixed, so the high discount margin sets the price instead.

Reading an FRN result

An FRN result shows a high, median and low discount margin, a bid-to-cover ratio and who bought, like other notes. It has no high yield. Compare a margin only with earlier FRN auctions, not with the yield of a fixed rate note.

What it does not tell you

• What the note will pay next month. That depends on future 13-week bill auctions.