US Treasury considers new debt security

[alp227]

Source: Financial Times

The US Treasury and Wall Street dealers are set to discuss whether to introduce a new debt security to help finance the country’s mounting budget deficit in the coming years.

Topping the agenda of a meeting on Friday between Treasury officials and dealers, who underwrite US government debt sales, is the possible introduction of floating-rate notes.

In contrast to normal fixed-rate Treasuries, which pay the same coupon throughout their lifespan, the payment to investors from floating-rate notes would go up or down as the Federal Reserve changed short-term interest rates. That could make them attractive to investors who think that Treasury yields have hit a floor and are set to rise in the coming years.

“We think the case for diversifying the Treasury’s funding sources by introducing is very strong in light of the prospect of persistently large budget deficits in the years ahead,” said Lou Crandall, economist at Wrightson Icap. “They would give the Treasury an additional tool for meeting unexpected increases in borrowing needs that would neither place upward pressure on long-term rates nor add to the government’s near-term rollover needs.”

Read more: http://www.ft.com/cms/s/0/0cf3791e-fbfd-11e0-b1d8-00144feab49a.html#axzz1beAkcCsT

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google the title for full article

[DJ13]

1. Adjustable rates, what could go wrong

[ixion]

2. more voodoo economics... oh yeah, that'll work out well...

not.

How about using the old fashioned way and making something real? I guess that's just too simple. :eyes:

[PoliticAverse]

3. Have they consulted the Greeks for some advice ? n/t

[Owlet]

4. We're gonna borrow our way out of this if it kills us

..and it will.

[bigworld]

5. How about a lottery?

Other countries do it. Many of the very first infrastructure projects in America were funded this way as well.

[PSPS]

6. What's being discussed here is otherwise known as a lottery.

Why not just call it "The US Treasury Wheel Of Fortune?" Step right up and place your bets!

[DeSwiss]

7. What the Treasury Department needs.....

...is more Jesus. Specifically, this Jesus:




- K&R

[davidwparker]

14. +1

Love me some Jesus.

[Turbineguy]

8. Another boondoggle

to get Wall Street more vig.

[snot]

9. Not clear how they'd differ from the inflation-protected T-Bills –-

is it just that they're tied to a rate set by the Fed rather than by whatever agency tracks inflation?

[Yo_Mama]

17. Yes - probably to Fed Funds rate

This is mainly to try to get the banks to be able to buy the longer term securities. What has happened is that long rates are so low that banks don't want to buy them. If they do, and if interest rates go up, banks could find themselves in a very dire situation.

Right now banks are rolling in money and can't figure out what to do with it. Normally they'd put some in Treasuries, but right now all they will buy are short-term Treasuries.

For stability purposes, it is really bad for Treasury to have tons of short-term debt out there. It makes a rate shock far more likely and US government financing far less stable.

So what lies behind this is the idea that if banks could buy a longer term security that would adjust somewhat on its own, they would use their excess cash currently to buy more of these securities, which would be a stabilizing factor for US government finances.

[valerief]

10. I wonder how we 99% will lose with that and how much the 1% will win. nt

[StarsInHerHair]

11. War Bonds? or a War Fee on Halliburton Bechtel etc

[unkachuck]

12. "...to introduce a new debt security..."

....a really, really, good, honest, no-joking, this-time-for-sure, Treasury, guaranteed to warm the heart of every crooked, greedy wall street gambler....get'em while they're hot!

"...attractive to investors who think that Treasury yields have hit a floor and are set to rise in the coming years..."

....yeah, more debt for us to pay off....some people go broke with adjustable rate thingies....

[SharonAnn]

13. And in 2000 they were worried about what would happen when we'd paid off our debt!

Seriously, they expected that the United States would pay off all its debt by 2011. Then, the problem would be that there would be no more Treasury Securities to set the rate "prime rate" for both public and private debt.

Guess we don't have that problem, eh?

[On the Road]

15. It's Amusing to Think

how many of the writers of these snarky comments are also against the cost-cutting and budget-balancing efforts.

[No Elephants]

16. Disingenuous comments like that are amusing, too.

I have not seen a single post here expressing opposition to cutting costs as an abstract proposition.

Questions are which costs? And which costs should be first? And when.

[On the Road]

18. The DU Consensus, Which I Agree With in This Case,

is that the government should borrow MORE in the short term to stimulate the economy and get it growing again. Tax policy alone is not going to do it.

That's why it's strange to see a new form of government borrowing immediately get dumped on without understanding the pluses and minuses or why it's being proposed.

There is widespread criticism here, (which I also agree with) of the kind of government downsizing and benefit cuts that have already been negotiated by both parties. If the federal government were handcuffed like state and local governments are when borrowing, the cuts would go beyond even what the GOP is proposing and take effect a lot sooner.