We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Constant Maturity?

Malcolm Tatum
Updated Jan 30, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Constant maturity is a type of yield that is quoted on a fixed financial instrument. This yield is used to compare a particular instrument with other financial instruments that carry similar maturity dates but different yields. Doing so makes it possible to identify how much of a return is earned as profits between the two instruments under consideration. This can often be extremely important to the financial well-being of the entity that is using the constant maturity to make the comparison, since it helps to determine whether the rate of return is sufficient to allow the lender or investor to reach his or her goals for the performance of those fixed rate instruments.

One easy way to understand how constant maturity works is to consider a bank that has determined the constant maturity rate on a one-year financial instrument is currently three percent. That rate is then compared to a loan that also has a maturity date of one year, and carries an interest rate of four percent. In this scenario, the difference between the two instruments is one percent, representing the profit margin that is realized by the bank at the time both instruments reach maturity.

Banks often use constant maturity as a means of calculating mortgage rates. The idea is to keep the interest rate applied to any mortgages written by the institution slightly ahead of maturity yields on other securities, allowing the bank to generate some sort of profit between the two instruments. The exact amount of that difference will depend on several factors, including the need to compete with other financial institutions offering fixed rate mortgages, and keeping in line with the prevailing average interest rate across the country. Unless the bank is able to generate some type of profit margin on the mortgage or other type of loan, the institution will ultimately be unable to service its customer base and will go out of business.

Governmental entities that issue bonds and similar securities also determine constant maturity as a way of understanding if those securities are generating profit or are failing. In the United States, the Federal Reserve Board uses a constant maturity in the process of quoting yields on T-bills and other types of treasury-issued securities. By making these comparisons, investors are able to compare the returns from investing in the government securities versus going with corporate bonds or securities carrying similar maturity dates. At that point, the investor can decide which option to acquire in order to earn the most return by the maturity date cited.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.