“The US Treasury’s floating rate notes (FRNs) feature variable interest rates reset weekly based on the 13-week Treasury bill auction’s high discount rate plus a fixed spread. Recent auctions show a high discount rate of 3.540% for the January 5, 2026, sale, contributing to effective rates around 3.730% when including typical spreads. This mechanism protects investors from rising rates while providing government financing flexibility amid economic shifts.”
Floating rate notes (FRNs) issued by the US Treasury represent a key segment of the marketable securities market, offering investors a hedge against interest rate volatility. These two-year notes pay interest quarterly, with the rate comprising a variable index tied to the most recent 13-week Treasury bill auction’s high discount rate, plus a fixed spread established at the time of issuance.
The variable rate fix process occurs weekly, typically effective on Tuesdays, drawing directly from the prior Monday’s 13-week bill auction results. This reset ensures the FRN’s interest rate aligns closely with short-term market conditions, making them attractive for portfolios seeking liquidity and minimal duration risk.
Recent auction data highlights stability in short-term rates, with the high discount rate holding steady amid Federal Reserve policies. For instance, the spread on the most recently issued 2-year FRN stands at 0.190%, leading to a composite rate that adjusts dynamically.
Key Mechanics of the Rate Fix
Index Rate Source : Derived from the high discount rate accepted in the weekly 13-week Treasury bill auction, which reflects competitive bidding from primary dealers and investors.
Spread Addition : A fixed premium or discount set during the FRN auction, varying based on market demand and economic outlook.
Reset Frequency : Weekly updates to the index, with accrued interest calculated daily and paid quarterly.
Payment Calculation : Interest accrues based on the actual number of days in the period, using a 360-day year convention for simplicity.
This structure contrasts with fixed-rate Treasuries, providing upside in rising rate environments while capping downside through the benchmark tie-in.
Recent Rate Fix Data
To illustrate current trends, consider the following table of selected 13-week Treasury bill auction high discount rates, which serve as the foundation for FRN variable fixes:
| AuctionDate | CUSIP | HighDiscountRate(%) | EquivalentCouponRate(%) | IssueDate | MaturityDate |
|---|---|---|---|---|---|
| January5,2026 | 912797SL2 | 3.540 | 3.622 | January8,2026 | April9,2026 |
| December29,2025 | 912797SK4 | 3.520 | 3.602 | January1,2026 | April2,2026 |
| December22,2025 | 912797SJ7 | 3.530 | 3.612 | December25,2025 | March26,2026 |
| December15,2025 | 912797SH1 | 3.550 | 3.632 | December18,2025 | March19,2026 |
| December8,2025 | 912797SG3 | 3.560 | 3.642 | December11,2025 | March12,2026 |
These rates influence FRN payouts, with the latest fix incorporating the 3.540% index. Adding a sample spread of 0.190% yields an effective rate of approximately 3.730% for affected notes.
Market Implications
Investors monitor these fixes closely, as they signal broader short-term borrowing costs for the government and correlate with Federal funds rate expectations. In a stable rate environment, FRNs offer yields competitive with money market funds but with the backing of full faith and credit.
