Preferred Financial Group

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Historical Mortgage Trends

1 Year Constant Maturity Treasury

In order to generate funds to cover the deficits of the U. S. government, the U. S. Treasury sells a variety of Treasury bills, notes and bonds. Generally, what differentiates bills, notes and bonds from one another are their terms…Treasury bills have terms of a year or less, Treasury notes between one and five years and Treasury bonds over five years.

While there are adjustable rate mortgages that are tied to 3-Month, 6-Month and 12-Month Treasury Bill indexes, the most commonly used Treasury index is the 1-Year Constant Maturity Treasury index (1-Yr. CMT). The 1-Yr. CMT is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year. Hmm, what the heck does this mean? If you can imagine a pipe holding twelve months worth of information, then taking an average of all the data in the pipe, you would have a constant maturity. As illustrated below, the one year old data (January 2004 1.24%) is replaced by current data (January 2005 2.86%), causing the average to change.

The constant maturity feature helps to minimize the volatility of the actual index. While this feature works against you when interest rates are falling (view 1990 YR. AVE. 7.88% vs. DEC. 1990 7.05%), it works for you when interest rates are rising (view 1994 YR. AVE. 5.31% vs. DEC. 1994 7.14%). It helps eliminate the surprise aspect of adjustable rate loans and this is a good thing! …interest rate increases tend to hurt more than the relief you get from comparable decreases.

These indexes are calculated by the U. S. Treasury Department and reported by the Federal Reserve.