What it means
A bond bought with ten years until maturity has nine years left after a year, so its own yield is no longer a ten-year observation. A constant-maturity series instead takes a new reading of the ten-year point on the yield curve each day, preserving the tenor of the comparison.
An analyst tracking rates must keep the chosen tenor constant, because a one-year rate and a ten-year rate measure different points on the curve. The Treasury says its CMT rates are read from its daily par yield curve, derived from indicative closing bid quotations on Treasury securities, so they can differ from yields on individual bonds.
The ten-year CMT point represents the par yield for a theoretical newly issued ten-year bond at that date, and no investor necessarily buys a bond at that exact rate. Treasury CMT rates are quoted on a bond-equivalent, simple annualised basis consistent with semiannual coupon convention, not as effective annual percentage yields incorporating reinvestment.
The curve can be upward sloping, flat or inverted, and a higher short-term CMT than long-term CMT is possible, not a data error. A lender may use a one-year CMT as an adjustable-rate mortgage index, then add a contractual margin, with the borrower's final rate also depending on reset rules and caps.
Treasury itself does not choose whether a lender uses CMT in a mortgage, since the loan documents identify the applicable index and calculation. The published benchmark is not the full cost of borrowing, as credit risk, servicing, fees and lender pricing can change the actual loan rate.
A fixed-income investor may compare a corporate bond's yield with a Treasury rate of similar maturity; the difference is a spread, but differences in structure complicate comparison. A constant-maturity swap periodically references a fixed tenor on a swap curve, and its payments and risks differ from those of a Treasury CMT series.
Do not conflate a constant-maturity reference with holding a bond for a constant period, because a real bond approaches its redemption date and has changing sensitivity to interest rates. Some yield-curve points require interpolation from observed securities, so the published value is an estimate informed by market quotes rather than a direct exchange transaction.
Treasury CMT is a par yield curve rather than a zero-coupon curve, so discount factors inferred from a separate zero curve should not be labelled Treasury CMT. The Treasury explains that weekly, monthly and annual averages of its CMT indexes appear in Federal Reserve H.15 material, while Treasury's own table is daily, so match data frequency to the contract.
Benchmark revisions, holiday publication gaps and different observation dates can matter at reset, and a loan's exact fallback provisions govern when its index is unavailable. A constant-maturity history helps isolate changes in market rates at a chosen horizon but does not forecast policy decisions or returns, so state the tenor, observation date, quotation convention and whether it is a Treasury or another market curve.
In practice
Real-world examples.
Example
An analyst compares the ten-year Treasury CMT on two dates rather than following one bond as it approaches maturity.
Example
A mortgage references one-year CMT plus a margin, subject to the loan's reset and cap terms.
Example
A trader checks whether the two-year CMT exceeds the ten-year CMT before describing the curve as inverted.
Formula
Calculation
Illustrative indexed rate = specified CMT observation + contractual margin, subject to contract caps and rounding. If the applicable one-year CMT is 4.0% and the margin is 2.0 percentage points, the uncapped calculation is 6.0%. This is not the Treasury's formula for generating CMT yields; the benchmark itself is read from a fitted par yield curve.Case study
Seen in the real world.
Fictional case: A borrower has an adjustable mortgage referencing the one-year Treasury CMT. At a reset, the specified observation is 4.1% and the contractual margin is 2.2 percentage points. A simple sum gives 6.3%, but the servicer must still apply the contract's observation date, rounding, periodic cap and lifetime cap.
The borrower compares the new payment with a fixed-rate refinancing quote, including fees. A chart of ten-year CMT rates would not substitute for the one-year index named in this loan. Nor would buying a Treasury bond lock the mortgage reset rate.
Watch out
Common mistakes.
- Treating CMT as the yield on a specific Treasury security rather than a fixed curve point.
- Applying a ten-year series to a contract that specifies one-year CMT.
- Calling the quoted bond-equivalent CMT an effective annual yield without converting compounding.
Questions
People also ask.
Why is maturity called constant?
The measured term stays fixed at each observation date even though market securities age.
Can a Treasury CMT rate differ from an actual bond's yield?
Yes. It is a par-curve point and may not match any particular traded security.
Does Treasury set my mortgage rate?
No. A lender's contract selects an index and applies its margin and other terms.
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