Summary
- FRNs, 2-year Treasury investments, have been in the news recently because their yields topped all Treasury investments with terms up to 10 years.
- FRNs are attractive during a time of rising interest rates, especially for cash you know you will be holding for two years.
- But during a period of declining rates – which could be coming – shorter-term investments give you more flexibility, with just a small yield penalty.
On May 31, a typical FRN was yielding about 2.4% while the 10-year Treasury yield had dropped to 2.14%. That means FRNs currently have about a 25 basis-point advantage over a 10-year Treasury. That’s a pretty remarkable example of yield inversion, because the FRN’s base interest rate matches the current 13-week Treasury.
Treasury Inflation-Protected Securities 
Thank you for replying.
I don’t participate in “X” or any other similar internet sites, perhaps I should.
In my opinion, those investors must be anticipating rates like they were in the ’70s.
I have searched the internet and am unable to find an analysis providing the rational for the dramatic drop in the spread for last weeks auction of FRN 91282CMJ7.
Do you have any thoughts about why this happened ?
The high discount margin on Jan 28 was 0.098% versus 0.140% on Dec. 24. I don’t follow FRNs closely, but when I posted that result on X last week I said: “Hard to see the appeal of this.” The spread goes lower when investors don’t believe interest rates are going to be falling. That’s my explanation.
Thank you for replying.
Those investors must be anticipating rates similar to the 1970’s