Floating Rate Money? The Stability Premium in Treasury Floating Rate Notes
NBER Working Paper No. 25216
We identify a significant premium in the prices of Treasury floating rate notes (FRNs) relative to both Treasury bills and notes. This premium is directly related to the near-constant nature of FRN prices and differs from the liquidity and on-the-run premia in Treasury security prices previously documented in the literature. We find that the premium is related to measures reflecting investor demand for safe assets such as market volatility and flows into money market funds. Ironically, some of the variation in FRN prices may actually be due to changes in the premium for their price stability.
Document Object Identifier (DOI): 10.3386/w25216