Treasury Delays Decision On New Line Of Floating Rate Notes
02 Maggio 2012 - 7:01PM
Dow Jones News
The U.S. Treasury Department on Wednesday said it deferred a
decision on whether to issue a new line of debt securities that may
impact an emerging three-way contest among exchange operators in
the huge interest-rate futures market.
Agency officials said more time is required to study the impact
of selling floating-rate Treasury notes alongside its traditional
offerings of fixed-rate securities, surprising many bond traders
and analysts who had expected the plans to be finalized.
The Treasury is examining a move into floating-rate issuance to
provide the government with more flexibility in paying off its
massive debt, perhaps at a lower cost.
The deferral also puts on hold a decision on how the Treasury
might track fluctuating rates, a move being closely followed by
exchange operators as two rivals challenge the dominant share in
rate futures held by Chicago-based CME Group Inc. (CME).
A move into floating-rate issuance would be most beneficial to
NYSE Euronext (NYX), whose U.S. futures unit is launching a new
range of rate futures. The head of the NYSE Liffe US unit said last
week that the contracts would gain faster acceptance if the
Treasury selects the General Collateral Finance, or GCF, repo index
as the floating-rate benchmark.
"We think it's going to be a success either way, no matter what
Treasury decides," said NYSE Liffe US Chief Executive Tom Callahan
said in an interview. An NYSE spokesman declined to comment
Wednesday.
NYSE still plans to launch the new product in July, the latest
attempt to challenge CME Group Inc. (CME), which dominates rate
futures trading. Bank and broker-backed ELX Futures LP also lists
rate futures contracts.
The GCF repo index calculates the average interest rate paid
each day for "general collateral" repurchase agreements that help
banks finance trading for Treasury bonds.
Callahan said the GCF index is a "far more precise" hedging tool
compared to the London Interbank Offered Rate and the U.S.
federal-funds rate, Callahan said. Libor is the benchmark for
Eurodollar futures listed at CME, NYSE Liffe US and the
broker-backed exchange run by ELX Futures LP.
For more than a year, international regulators and law
enforcement officials have investigated allegations that some
traders and bank employees have manipulated interbank rates.
The British Bankers Association, which oversees Libor settings,
is conducting its own investigation.
Many traders have in recent years abandoned markets tied to the
overnight effective fed-funds rate because the Federal Reserve has
kept the rate near zero for a prolonged period.
-By Howard Packowitz, Dow Jones Newswires; 312-750-4132;
howard.packowitz@dowjones.com
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