The Treasury Department on Wednesday said it is developing a floating-rate note program that could be operational in a year or more, while it is preparing for possible negative-rate bidding.
The floating-rate notes would be the first new U.S. government debt security since TIPS were introduced in 1997.
With a budget deficit estimated at $1.21 trillion this year, the Treasury needs to expand its base of investors, and the notes may appeal to those who are seeking to protect themselves from a possible increase in interest rates or faster inflation stemming from the Federal Reserve's unprecedented stimulus.
The Treasury Borrowing Advisory Committee, the bond dealers and investors who meet quarterly with department officials, said it unanimously supports the introduction of the notes as soon as possible. The group predicted “strong, broad-based demand for the product.”
“Treasury plans to develop a floating-rate note program to complement the existing suite of securities issued and to support our broader debt-management objectives,” the department said in a statement. It said the first auction “is estimated to be at least one year away.”
The Treasury also said it is “in the process of building the operational capabilities to allow for negative-rate bidding in Treasury bill auctions, should we make the determination to allow such bidding in the future.”
Investors who bid at auctions for Treasury bills at negative yields would pay more than face value for the securities, ensuring that if they hold the debt to maturity they will get back less than they paid.