US floating rate debt: take note It is a dream come true: US Treasury debt without the interest rate risk. That's an investment you can really cram your mattress with. US government securities with floating rates will soon be available. This at a time when the closest available substitute, "floaters" issued by Fannie Mae and Freddie Mac, have declined. The Treasury will start by selling $10bn to $15bn of notes in January. The debt will have a two-year maturity and be indexed to the yield on the 13-week Treasury. The floaters will be the first new debt securities introduced since Tips (Treasury inflation protected securities) were launched in 1997. Why wouldn't investors just buy Tips instead of the new floaters? It is not a foregone conclusion that rising inflation will always accompany rising interest rates. This could happen - to pick a random example - if the Federal Reserve were to taper quantitative easing, in the absence of inflation, because unemployment was falling or market froth was becoming worrisome. Come auction time early next year, the spread the floaters offer to the three-month Treasury bill will be important for would-be buyers. An issue for investors (and a boon for the Treasury) is that demand for this rate hedge - anticipated to be large - means the floaters wind up expensive. Investors, corporate treasurers and banks get their hedge. What is in it for the Treasury? Floaters will help to diversify the investor base, which is what any debtor wants. They also fit nicely with the Treasury's goal of lengthening the maturity profile. Issuing floating rate notes with a two-year maturity reduces the need for shorter-dated Treasury bills. And if the two-year floaters are a hit, Uncle Sam may sell five-year ones too. So now that protection against interest rate risk in Treasuries is available, what about newfound fears of credit risk? Over to you, Congress.