What it means: 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 five-year maturity. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.
How it's used: This figure is used as a reference point to establish the price of other securities such as corporate bonds. Treasury securities are considered risk-free since they are backed by the U.S. government. This figure, and an added margin based upon the risk involved, is used in pricing various debt securities. It is also used in establishing certificate of deposit (CD) yields.
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