US Treasury delays decision on floating rates
Wednesday, May 2, 2012
WASHINGTON (AP) — The U.S. Treasury Department is postponing a decision on whether to issue securities with floating rates or negative yields, saying it wants more time to study the changes that could help finance the rising national debt.
Treasury said Wednesday that it was still examining selling securities with a floating interest rate rather than a fixed rate. It also said it continued to study selling securities that could be auctioned with negative yields, which essentially provide a means for investors to pay the government for the privilege of buying those securities.
Offering a floating rate on Treasury securities would be similar to variable rate mortgages. Investors would make money if rates go up. And even though the government would have to pay out more under that scenario, it might consider that a risk worth taking because it could draw more investors and raise more money to finance its debt.
Treasury officials said they are still studying a large number of comments on the new securities. They gave no time table for making a decision. Three months ago they said they expected to decide by May.
In February, the Treasury’s bond advisory committee had urged the government to offer both instruments. Mortgage giants Fannie Mae and Freddie Mac have had success in selling floating-rate securities.
Treasury officials said the comments that have been received have been for the most part encouraging. Treasury last brought out a new type of security 15 years ago in 1997.
Those securities, called TIPS for Treasury inflation-protected securities, have yields that are indexed to inflation.