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What is a Treasury Swap Rate?

The U.S. Treasury Yield is calculated by the U.S. Department of the Treasury from the daily yield curve. It is also referred to as the Treasury Yield Curve Rate, Constant Maturity Treasury Rate, or CMTs. These rates are essentially the return an investor would receive from the purchase of a U.S. government debt obligation, such as a bill, note, or bond. It is also the interest rate that the government pays to the investors to borrow money for a certain amount of time, ranging from 30 days to 30 years.

 

What You Should Know About a Treasury Rate

 

Treasury Yield Curve

The treasury rate curve is plotted on an x and a y axis, showing several yield rates across different bond maturities. It shows the relationship between the U.S. bond yield (rate) and the time to maturity. The market yields are calculated from indicative, bond buyer offerings, rather than actual sales, which are obtained by the Federal Reserve Bank of New York at or near 3.30 p.m. each trading day.

 

The Importance of Treasury Yields

Treasury Rates are considered an Index for many lenders, on which they determine the cost of borrowing (the commercial interest rate) by adding a “spread” to the treasury rate or treasury swap. The treasury rate and swaps are especially important for non-recourse mortgage products such as CMBS, Fannie Mae, or Freddy loans. What’s more, the 10-year U.S. Treasury bond is considered one of the benchmarks for the overall health of the U.S. economy. When there is confidence in the economy, the treasury bond rates increase along with interest rates, while a lack of confidence cause the rates to drop.

 

Do you have more questions regarding the Treasury Swap Rate? At Fidelity Mortgage Lenders, we’re here to help. Contact Peter directly on PSteigleder@FidelityCA.com or give him a call on 818.422.8879.

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