Constant Maturity Treasury Index (CMT Index)

The constant maturity treasury index is an estimate of the one-year yield of the most recently sold treasury securities, such as bonds. The rate of this yield is interpolated based on the closing-market bid yields on treasury security auctions in over-the-counter markets. 

Importantly, some variable rate mortgages and loans are tied to the rate of the constant maturity index. For some borrowers with variable rate loans, knowing the current CMT is a good indication of the way their rates may change. 

Key takeaways

  • Constant maturity treasury index (CMT index) is an estimate of the yield rate of treasury securities based on the closing bid for over-the-counter traded securities. 
  • This rate serves as a method of indexing adjustable rate mortgages. 
  • When tied to the CMT treasury index, an adjustable rate mortgage’s interest rate will fluctuate as the CMT index does. 

What are constant maturity treasury indexes?

Constant maturity refers to a Treasury security’s theoretical worth, which is based on recently auctioned Treasury security values. The value is calculated on a daily basis by the US Treasury using interpolation — a method of estimation used in finance — of the Treasury yield curve, which is based on closing bid-yields of actively traded Treasury securities. 

Indexes like the CMT index are a useful way for investors to track the value of their assets and gain insights into the direction of the economy. They are also useful for mortgage lenders to use as a consistent benchmark for adjustable rate mortgages.

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How are CMT indexes used?

CMT indexes are used as a way to manage the rates of adjustable rate mortgages. Adjustable rate mortgages have variable interest rates. As opposed to fixed-rate mortgages, which maintain the same interest rate throughout the term of the loan, an adjustable rate may fluctuate depending on factors determined by the lender.

One way the rate may fluctuate is because it is indexed to a CMT. The CMT rate can vary depending on the value produced by the auction of Treasury securities. The higher the rate of the current CMT index goes, the higher the rate on loans whose interest rates are tied to the CMT rate go. 

If you’re considering a mortgage or reverse mortgage loan, it’s important to speak with a professional who can help walk you through the process, reverse mortgage costs, and determine which method of financing is right for your particular case. A GoodLife Reverse Mortgage Specialist will be happy to help you understand your options. 

You can also read through reverse mortgage pros and cons on our helpful blog page. 

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