Treasury Lock

AAA

DEFINITION of 'Treasury Lock'

A hedging tool used to manage interest-rate risk by effectively securing the current day's interest rates on federal government securities, to cover future expenses that will be financed by borrowing. Treasury locks are a type of customized derivative security that usually have a duration of one week to 12 months. They are cash settled, usually on a net basis, without the actual purchase of any Treasuries.

INVESTOPEDIA EXPLAINS 'Treasury Lock'

The parties involved in a Treasury lock, depending on the respective sides of the transaction, pay or receive the difference between the lock price and market interest rates. Treasury locks are commonly used by companies that plan to issue debt in the future, but want the security of knowing what interest rate they will pay on that debt.

RELATED TERMS
  1. Lock Period

    A number of days, often 30 or 60, during which the interest rate ...
  2. Derivative

    A security whose price is dependent upon or derived from one ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. U.S. Treasury

    Created in 1798, the United States Department of the Treasury ...
  5. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with ...
  6. Treasury Note

    A marketable U.S. government debt security with a fixed interest ...
Related Articles
  1. Careers In The Derivatives Market
    Options & Futures

    Careers In The Derivatives Market

  2. Are Derivatives A Disaster Waiting To ...
    Options & Futures

    Are Derivatives A Disaster Waiting To ...

  3. Why Leveraged Investments Sink
    Options & Futures

    Why Leveraged Investments Sink

  4. Getting Acquainted With Options Trading
    Options & Futures

    Getting Acquainted With Options Trading

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center