Government to Sell Treasury Security With Variable Rate

WASHINGTON (AP) -- The government says that it will begin selling Treasury securities next year that have variable interest rates. It's the first new Treasury security in 17 years.

Treasury officials said Wednesday that the initial offering on Jan. 29 will be in a range of $10 billion to $15 billion. Auctions will occur each month. The securities will have a two-year maturity and the rate will be allowed to go up or down. It will be pegged to rates on three-month Treasury bills.

The government expects more investors will be drawn to the prospect of earning higher yields if rates go up. And it believes the attractiveness of the new security will offset any risk of having to pay more to borrow funds.

In the news release announcing the new Treasury security, Matthew Rutherford, Treasury's assistant secretary for financial markets, commented on last month's fight over raising the government's borrowing limit. He said the delay in raising the borrowing limit disrupted bond markets and increased borrowing costs to the government for newly issued Treasury bills.

Rutherford said Congress should not delay approving an increase in the borrowing limit before the next deadline of Feb. 7. On that date, the current suspension in the borrowing limit expires and Treasury will be forced to start using various book-keeping maneuvers to stop from breaching it.

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