Working Paper: NBER ID: w25216
Authors: Matthias Fleckenstein; Francis A. Longstaff
Abstract: 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.
Keywords: Treasury Floating Rate Notes; Stability Premium; Safe Assets; Debt Management
JEL Codes: G12; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stability premium in Treasury Floating Rate Notes (FRNs) (E43) | Prices of Treasury Floating Rate Notes (FRNs) (E43) |
| Price volatility differences between FRNs and matched-maturity Treasury securities (E43) | Stability premium in Treasury Floating Rate Notes (FRNs) (E43) |
| Economic uncertainty and systemic risk (E44) | Stability premium in Treasury Floating Rate Notes (FRNs) (E43) |
| Investor demand for safe assets (market volatility and dealer funding liquidity) (E44) | Stability premium in Treasury Floating Rate Notes (FRNs) (E43) |