What to watch: New play on rising interest rates

A new investment from the Treasury could be a good way to play rising interest rates — but you might have a while to wait before they do.

Floating Rate Notes, or FRNs, are the first new investment from the U.S. Treasury since 1997, when the government launched Treasury Inflation Protected Securities, or TIPS. FRNs will be two-year notes that have rates that change quarterly.

Don't look for generous pay-outs. The Treasury is interested in getting the lowest possible borrowing rates for taxpayers, not the highest returns for investors.

Part of the Treasury's reason for offering the FRNs is to extend the maturity of Treasury debt, allowing the government to keep lower borrowing rates longer.

The interest rates on FRNs are based on the discount rate of 13-week Treasury bills at auction. At the last 13-week auction, the rate was equivalent to an annual rate of 0.04%. Interest is free from state and local income taxes, but not federal income taxes.

You can buy FRNs at auction through Treasury Direct or through your broker. Minimum investment is $100. You can also sell them before they mature, but you'll have to take the market price — which could be higher or lower than your purchase price.

The Treasury will auction FRNs quarterly. The first auction, for $15 billion in FRNs, will be held on Jan. 29.

Don't look for rising rates soon; the Federal Reserve has said it's not likely to raise short-term rates this year.

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