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Demystifying the US Treasury floating rate note puzzle: A swap market perspective

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  • Ahn, Jungkyu
  • Ahn, Yongkil

Abstract

We compare two versions of the US Treasury floating rate note (FRN) price measured in Treasury auctions and in the swap market. Utilizing a proprietary dataset from J.P. Morgan, we find that the actual US Treasury FRNs are traded in premium in comparison with their synthetic equivalents in the swap market, and the premium amounts to four basis points on average. Moreover, they are priced up by four more basis points when the aggregate fixed income market is in turmoil, confirming that US Treasury FRNs are indeed safe assets, and thus require a price premium ex ante.

Suggested Citation

  • Ahn, Jungkyu & Ahn, Yongkil, 2022. "Demystifying the US Treasury floating rate note puzzle: A swap market perspective," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322005396
    DOI: 10.1016/j.frl.2022.103362
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    Cited by:

    1. Ahn, Yongkil, 2024. "Flight to safety, intermediation frictions, and US Treasury floating rate note prices," Finance Research Letters, Elsevier, vol. 60(C).
    2. Ahn, Jungkyu & Ahn, Yongkil, 2023. "What drives the TIPS–Treasury bond mispricing?," Journal of Empirical Finance, Elsevier, vol. 74(C).
    3. Ahn, Jungkyu & Ahn, Yongkil, 2023. "Clogged pipes in the repo market," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Floating rate note; Safe asset; Discount margin; Asset swap; Basis swap;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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