Constant Maturity Treasury Rate (CMT Rate)

The constant maturity Treasury rate (CMT Rate) is the rate of yield for Treasury securities issued by the US government. The yearly rate of yield is estimated based on the closing-market bid yields on treasury security auctions for over-the-counter markets. 

Notably, the rate of the constant maturity index is connected to some variable rate mortgages and loans. Knowing the current CMT can give borrowers with variable rate loans a decent idea of how their rates might change. 

Key Takeaways

• Constant maturity treasury rate definition is an estimate of the increase in value for treasury securities based on the closing bid for over-the-counter traded securities. 
• The CMT rate is sometimes used as a way to index the rate change for variable rate loans. 
• The interest rate on an adjustable rate mortgage that is linked to the CMT treasury index will fluctuate in lockstep with the CMT index. 

What are constant maturity treasury rates?

The Federal Reserve Board uses a constant maturity adjustment for equal maturity to create an index based on the average yield of several Treasury securities maturing at different intervals. Constant maturity yields serve as a benchmark for valuing various debt and fixed-income assets. 

Types of CMT rates

CMT rates are one of the ways that adjustable rate mortgages are determined. Ultimately, it’s up to the discretion of the lender how they determine rate changes for a given plan. 

The alternative to a variable rate loan is a fixed-rate loan, where the rate agreed upon at the onset of the loan is the same rate that continues through the term of the loan. 

How are CMT rates used?

CMT indexes are used to control the interest rates on adjustable-rate mortgages. Variable interest rates are found in adjustable rate mortgages. Unlike fixed-rate mortgages, which keep the same interest rate throughout the loan’s duration, an adjustable rate mortgage’s interest rate may fluctuate depending on factors specified by the lender. 

Because it is indexed to a CMT, the rate could fluctuate. The CMT rate might change depending on the value of Treasury securities auctioned. The higher the current CMT index rate rises, the higher the rate on loans with CMT-linked interest rates rises. 

How are CMT rates calculated?

The CMT rate is calculated on a daily basis by the US Treasury using interpolation — a type of estimation for investments — of the Treasury yield curve. This is based on closing bid-yields of actively traded Treasury securities. The daily yield curve of US Treasury securities is used to calculate the general CMT rate.