UPDATE 2-US Treasury sets $72 bln refunding, mulls floating rate notes

Wed Feb 6, 2013 11:10am EST

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WASHINGTON Feb 6 (Reuters) - The U.S. Treasury on Wednesday announced plans to auction $72 billion in debt securities next week, in line with expectations, also adding that it is planning to issue floating-rate notes in the next year.

In its quarterly refunding announcement, the Treasury said the government will issue $32 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds, unchanged from its announcement last quarter.

The auctions together will raise about $8 billion in new cash, Treasury officials said, adding that they expect debt sales to remain stable in the next few months.

Treasury also said it is currently reviewing comments on floating rate notes, and plans to issue final rules in coming months. These notes are the first new debt security since 1997, and would attract investors who want to be sure they do not miss out on higher returns if interest rates begin to move higher.

Treasury's borrowing advisers said they are hopeful the first floating rate note auction can happen around November of this year.

Treasury also plans to issue more five-year inflation-protected securities, or TIPS, this year, officials said. The Treasury department has said it wants to issue more notes in order to increase liquidity in the TIPS market.

Earlier this week, the Treasury cut its borrowing estimates for the year's first quarter to $331 billion after starting off the year with a higher-than-expected cash balance.

Officials on Tuesday also said Treasury would issue $31 billion in debt to repay money to retirement funds it drew on during emergency cash measures. These so-called "extraordinary measures" helped the government preserve its borrowing capacity after the nation touched the legal limit on its debt.

President Barack Obama earlier this week signed legislation to allow the government to keep borrowing money at least through May 19.

Asked about the prospect of issuing a 50-year bond, which was discussed hypothetically at the primary dealer banks' advisory meeting, Matthew Rutherford, assistant secretary for financial markets, was non-committal.

"It's an important topic but more needs to be done," he told reporters.

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