Constant Maturity

AAA

DEFINITION of 'Constant Maturity'

An adjustment for equivalent maturity, used by the Federal Reserve Board to compute an index based on the average yield of various Treasury securities maturing at different periods. Constant maturity yields on Treasuries are obtained by the U.S. Treasury on a daily basis through interpolation of the Treasury yield curve, which in turn is based on closing bid-yields of actively-traded Treasury securities. Constant maturity yields are used as a reference for pricing debt securities issued by entities such as corporations and institutions.

INVESTOPEDIA EXPLAINS 'Constant Maturity'

Constant maturity yields are often used by lenders to determine mortgage rates. The one-year constant maturity Treasury index is one of the most widely used, and is mainly used as a reference point for adjustable-rate mortgages whose rates are adjusted annually.




Since constant maturity yields are derived from Treasuries, which are considered risk-free securities, an adjustment for risk is made by lenders by means of a risk premium charged to borrowers in the form of a higher interest rate. For example, if the one-year constant maturity rate is 4%, the lender may charge 5% for a one-year loan to a borrower. The 1% spread is the lender's compensation for risk and is the gross profit margin on the loan.

RELATED TERMS
  1. One-Year Constant Maturity Treasury ...

    The interpolated one-year yield of the most recently auctioned ...
  2. Yield

    The income return on an investment. This refers to the interest ...
  3. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
  4. Constant Maturity Swap - CMS

    A variation of the regular interest rate swap. In a constant ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  6. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
RELATED FAQS
  1. Why is the employment figure important to a "dove"

    The employment figure is important to doves, because they are primarily concerned with the health of the labor market. Doves ... Read Full Answer >>
  2. What are the goals of a "dove" Federal Reserve head?

    The goals of a dovish Federal Reserve head are to maintain low interest rates, stimulate the overall economy, decrease the ... Read Full Answer >>
  3. To what extent are utility stocks affected by changes in interest rates?

    Utility stocks are definitely subject to interest rate risk and can be significantly impacted by changes in interest rates. Competition ... Read Full Answer >>
  4. What is the difference between term structure and a yield curve?

    There is no difference between term structure and a yield curve; the yield curve is simply another name to describe the term ... Read Full Answer >>
  5. What is the opposite of a "dove"?

    A dove is an economic policy adviser who favors maintaining low interest rates in hopes of stimulating the economy, while ... Read Full Answer >>
  6. Why is term structure theory of importance to economists?

    The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >>
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  3. Bonds & Fixed Income

    Introduction To Treasury Inflation-Protected Securities (TIPS)

    If you want to protect your portfolio from inflation, all you need are a few TIPS.
  4. Investing Basics

    How To Create A Modern Fixed-Income Portfolio

    Exposure to different asset classes is required to generate income, reduce risk and beat inflation. Find out how bonds can help.
  5. Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  6. Mutual Funds & ETFs

    Evaluating Bond Funds: Keeping It Simple

    Discover some of the key factors for determining a fund's risk-return profile.
  7. Trading Systems & Software

    The Fast-Paced World of Libor & Fixed Income Arbitrage

    LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a step-by-step explanation of how it works.
  8. Economics

    Regional Banks Give The Fed A National Perspective

    We all know that the Federal Reserve utilizes monetary policy to control the economy, but what do the 12 regional Federal Reserve Banks do?
  9. Fundamental Analysis

    Spectator Vs. Speculator: Two Market Approaches

    Spectators and speculators rely on different mechanisms to identify and profit from market opportunities.
  10. Savings

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!