(302) 703-0727

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1 Year T-Bill – What is it?

John Thomas July 17, 2007 Tags: ,

1 Year T -Bill what is it?

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 – NMLS 38783

Certified Mortgage Planner -Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

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About John Thomas

John Thomas and his team are long-time Delaware natives. They know the local real estate market as well as they know the loan products that help them serve it. Dedicated to helping first-time buyers; the John Thomas Team are experts on first-time buyer loan programs (FHA, VA, USDA) and conduct monthly first-time buyer seminars that have been attended by more than 3000 Delaware buyers.