1 Year T-Bill – What is it?
July 17th, 2007 by John Thomas
1 Year T-Bill
One-Year/12-Month Constant Maturity Treasury (CMT)
This is an index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a one-year maturity. The US Treasury determines the yields on these securities by using the “daily yield curve”. The daily yield curve is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market. This index tends to be volatile and responds quickly to changes in economic conditions.
Summary:
This was the index of choice for years for banks and many ARMs still on the books are tied to this index. Because of its propensity to move quickly, the 1-year T-bill index has become less attractive for many mortgage originators and consumers as other alternative indexes have been introduced. Normally the CMT has a two percent interest rate change cap per year and a six percent lifetime cap, and the CMT has moved two percent in a year several times over the past twenty-five years.
Ideally Suited for:
This index is ideally suited for a very limited market at this time due to its volatility. It could possibly be used during a downtrend in interest rates such as during an easing cycle by the Fed – as it will tend to fall more quickly than other indexes.
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John R. Thomas – Certified Mortgage Planner – Primary Residential Mortgage, Inc.
302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office
42 Reads Way, New Castle, DE 19720
I am a Delaware native who has been actively involved in the Mortgage and Finanace industries for over 10 years. Call me at 302-703-0727