Operating Policy
Treatment of Treasury FRNs in SOMA Operations
January 13, 2014

The U.S. Treasury has announced that it intends to begin issuing Floating Rate Notes (FRNs), with the first auction occurring on January 29, 2014.  The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) intends to treat FRNs in a similar manner to other Treasury securities in its reinvestment of proceeds received from maturing Treasury security holdings, its securities lending program, and its repurchase agreement (RP) and reverse RP operations.  Due to their short duration, FRNs will not be included in the current program to purchase longer-term Treasury securities.  

Reinvestments

When existing System Open Market Account (SOMA) holdings of Treasury notes, bonds, TIPS, and FRNs mature and require reinvestment, the total maturing proceeds will be reinvested across all newly-issued Treasury notes, bonds, TIPS, and FRNs in proportion to the amounts being issued, similar to the existing practice.

Securities Lending

Once held by the SOMA, FRNs will be available to be borrowed in the daily securities lending program, and will be subject to the same terms and conditions that are applied to all other Treasury securities.  Additionally, FRNs will serve as eligible collateral to be pledged in exchange for borrowed securities.

Repurchase Operations

FRNs will also be considered eligible collateral in RP operations, and the Desk may pledge Treasury FRNs in reverse RP operations. 

Effective Date

The Desk anticipates beginning to reinvest some of the proceeds from maturing Treasury securities into Treasury FRNs, and beginning to accept Treasury FRNs as collateral in securities lending and RP operations, in the second quarter of 2014.  The Desk will provide more detail on the precise date as it approaches.