Shmoop Finance

The government has lots of different debt instruments trading at any given time. It has short-term stuff, bills with maturities of a year or less. It has medium-term stuff, notes with maturities in the two-year-to-ten-year range. And it has long-term instruments, like the 30-year Treasury bond.

Each maturity length has a different interest rate. Typically, the longer the maturity, the higher the rate. With all these different maturities, it's hard to approximate a general picture of Treasury rates.

You can use one maturity as a benchmark (the 10-year or the 30-year, for instance). But that ignores what's going on at all the other maturity levels. How do you boil everything down to a single number? That goal represents the purpose of the One-Year Constant Maturity Treasury.

It's a stat published by the Federal Reserve, providing a one-number-to-rule-them-all figure to describe the overall Treasury situation. The Fed uses the monthly average yield for the Treasury securities to come up with an adjusted figure, putting all the maturities into a one-year context. These figures then get compiled into the 1-year CMT number.

The index is often used as a benchmark for other types of lending. For instance, it can be used as a basis for changes in adjustable-rate mortgages.