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Historical Interest Rates and Indexes

  Home Mortgage Research > Historical Interest Rates and Indexes

 

 

1 Year Constant Maturity Treasury: CMT

 

These indices are the weekly or monthly average yields on U.S. Treasury securities adjusted to constant maturities. Yields on Treasury securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

 

The CMT indices are volatile and move with the market. They reflect the state of the economy, and respond quickly to economic changes. These indices react more quickly than the COF index or the (12 MTA) index.

 

 

12 Month Treasury Average (12 MTA)


The Monthly Treasury Average is a relatively new ARM index. This index is the 12-month average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year. It is calculated by averaging the previous 12 monthly values of the 1-Year CMT. Because this index is an annual average, it is more steady than the 1-Year CMT index.

 

The MTA index generally fluctuates slightly more than the 11th District COFI, although its movements track each other very closely.  Used with the popular pay option ARM program

 

 

11th District Cost Of Funds Index: COFI


Pronounced (Coffee or Eleventh District) This index reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds.

 

The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada.  Since the largest part of the Cost Of Funds Index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

 

 

Federal Funds Rate


The Federal Funds Rate is the cost of borrowing immediately available funds, primarily for just one day. The effective rate is weighted average of the reported rates at which different amounts of the day's trading through New York Brokers occurs.

 

 

London InterBank Offered Rate: 1 Mo LIBOR  

 

Pronounced (Lie-Bore) London InterBank Offering Rate (LIBOR) is an average of the interest rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. The Eurodollar market is a major component of the international financial market. London is the center of the Euromarket in terms of volume.

 

The LIBOR is an international index, which follows the world economic condition. The LIBOR rate quoted in the Wall Street Journal is an average of rate quotes from five major banks. Bank of America, Barclays, Bank of Tokyo, Deutsche Bank and Swiss Bank.  It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the 1-Year CMT index and is more open to quick and wide fluctuations than the COFI rate. I

 

t is the European version of our Central Bank system's Fed Funds rate.  LIBOR is used by both Fannie Mae and Freddie Mac as a standardized adjustable rate loan index.

 

 

London InterBank Offered Rate 6-Month LIBOR


London InterBank Offering Rate (LIBOR) is an average of the interest rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. The Eurodollar market is a major component of the international financial market. London is the center of the Euromarket in terms of volume.

 

The LIBOR is an international index, which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the 1-Year CMT index and is more open to quick and wide fluctuations than the COFI rate.

 

 

Prime Rate


The Prime Rate is the interest rate charged by banks for short-term loans to their most creditworthy customers whose credit standing is so high that little risk to the lender is involved. In the past, only a small percentage of customers qualified for the prime rate, which tends to be the lowest going interest rate and thus serves as a basis for other, higher risk loans.

 

Today, the loans use prime plus a margin or prime minus a margin for every borrower.  Prime rate has lost it's prestige as a true "prime" or premiere index.  Some may think that if everybody is eligible, it is no longer "Prime".  It is humorously thought that the industry doesn't want to hurt borrowers "self esteem" by offering anything but prime. 

 

In reality, Prime Rate, is a durable and practical index that is easy to follow and the industry standardization is for the benefit of borrowers and investors who purchase the loans from banks.  The rate is almost always the same at the major banks. Adjustments to the prime rate are made by banks at the same time, although, the prime rate does not adjust on any regular basis.

 

Typically when the Federal Reserve adjusts the Federal Funds Rate and Discount Rate, the Prime Rate adjusts the same day or within a few days at most.  The prime rate is not a very volatile index however it generally rises quickly (Increases bank profits) and declines very slowly (Maintains banks profits).  It is often the index for home equity lines of credit.