WASHINGTON (CN) - All bonds and notes issued by the Treasury Department will have an interest rate of at least 0.125 percent to avoid the possibility of issuing zero interest bonds and securities.
The new floor goes into effect April 1.
The interest rate on Treasury securities is set, in part, at auction and in a low interest rate environment the maximum bid on offered securities may be below the minimum adjustment rate used by the department, 0.125 percent.
In the auction held for one month T-bills to be issued on Thursday, fifty percent of the bids entered were below 0.120 percent though the final rate on the securities to be issued was 0.137 percent.
The Treasury does not actually pay interest on T-bills; the "interest" rate is actually a discount of the face value of the security, which is paid when the bill matures. Thus, imposing a floor makes purchase of the bills more attractive to investors.
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