High yields will be a stretch for new U.S. debt

  @Money January 10, 2014: 4:18 PM ET
us treasuries

A new U.S. Treasury note will be available on January 29. But don't look for high yields.

(Money Magazine)

Do you dream of a safe bond that could earn interest higher than today's microscopic rates?

The U.S. has a deal for you -- though it's probably not a good one.

On Jan. 29, the Treasury will start selling its first new security in 17 years, the floating-rate note.

Unlike the case with most U.S. debt, which pays fixed rates, interest on the two-year FRNs will adjust weekly, tied to changes in the rate the Treasury pays on debt maturing in three months.

Related: Stocks, bonds? In 2014, think cash

While the FRNs' initial yield is expected to be low -- around 0.16%, compared with 0.3% in December for two-year Treasuries -- demand could be high, partly because investors don't want to be stuck with two-year notes if short-term rates rise.

2014 economy will 'return to normal'

But those rates aren't likely to budge soon, says Collin Martin, an analyst at the Schwab Center for Financial Research. Skip the notes, to be sold via TreasuryDirect.gov; instead, get better yields from online banks. To top of page

Send a letter to the editor about this story to money_letters@moneymail.com.


Floating rates, low yields
Interest on the U.S. Treasury's new debt securities has the potential to rise. Even so, the yield will likely be minuscule for the near future.
Two-year floating-rate note Two-year Treasury note Online bank account
Yield 0.16% estimated 0.3% 0.9%
NOTE: Estimate and actual yields as of Dec. 9, 2013. SOURCES: U.S. Treasury; Jerome Schneider, Pimco; Bankrate.com
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