The initials stand for the Wall Street
Journal, which surveys large banks and publishes the consensus
prime rate. It's the most widely quoted measure of the prime
rate, which is the rate at which banks will lend money to their
most-favored customers. The prime rate will move up or down
in lock step with changes by the Federal Reserve Board.
How
it's used:
The prime rate is an important index
used by banks to set rates on many consumer loan products, such
as credit cards or auto loans. If you see that the prime rate
has gone up, your variable credit card rate will soon follow.
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Term:
Federal
Discount Rate
What
it means:
The interest rate at which an eligible
financial institution may borrow funds directly from a Federal
Reserve bank. Banks whose reserves dip below the reserve requirement
set by the Federal Reserve's board of governors use that money
to correct their shortage. The board of directors of each reserve
bank sets the discount rate every 14 days. It's considered the
last resort for banks, which usually borrow from each other.
How
it's used:
The Fed uses the discount rate to
control the supply of available funds, which in turn influences
inflation and overall interest rates. The more money available,
the more likely inflation will occur. Raising the rate makes
it more expensive to borrow from the Fed. That lowers the supply
of available money, which increases the short-term interest
rates. Lowering the rate has the opposite effect, bringing short-term
interest rates down. Back
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Term:
Fed
Funds Rate
What
it means:
The interest rate at which banks
and other depository institutions lend money to each other,
usually on an overnight basis. The law requires banks to keep
a certain percentage of their customer's money on reserve, where
the banks earn no interest on it. Consequently, banks try to
stay as close to the reserve limit as possible without going
under it, lending money back and forth to maintain the proper
level.
How
it's used:
Like the federal discount rate, the
federal funds rate is used to control the supply of available
funds and hence, inflation and other interest rates. Raising
the rate makes it more expensive to borrow. That lowers the
supply of available money, which increases the short-term interest
rates and helps keep inflation in check. Lowering the rate has
the opposite effect, bringing short-term interest rates down.
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Term:
11th
District Cost of Funds
What
it means:
A monthly cost-of-funds index (COFI)
reflecting the weighted-average interest rate paid by 11th
Federal Home Loan Bank District savings institutions for savings
and checking accounts. The 11th district covers Arizona,
California and Nevada. The index is published on the last day
of the month and reflects the cost of funds for the prior month.
How
it's used:
It’s an index that is used to set
the cost of variable-rate loans, such as an adjustable-rate
mortgage. Lenders use such an index, which varies, to adjust
interest rates as economic conditions change. They then add
a certain number of percentage points called a margin, which
doesn’t vary, to the index to establish the interest rate you
must pay. When this index goes up, interest rates on any loans
tied to it also go up. COFI usually lags market interest rates
in both up and down markets. That means loans tied to this index
rise and fall more slowly than rates in general. Back
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Treasury securities
Term:
One-Year
Treasury Constant Maturity
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 one-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:
It's an index that is used to set
the cost of variable-rate loans, particularly adjustable-rate
mortgages (ARMs). Lenders use such an index, which varies, to
adjust interest rates as economic conditions change. They then
add a certain number of percentage points called a margin, which
doesn't vary, to the index to establish the interest rate you
must pay. When this index goes up, interest rates on any loans
tied to it also go up. Roughly half of all ARMs are based on
this index. It is volatile and responds quickly to changes in
economic conditions. Back
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Term:
91-day
T-bill auction avg disc rate
What
it means:
The U.S. government issues short-term
debt at a discount at a competitive auction, usually on a weekly
basis. At a discount means the note is sold at a discount from
face value and then redeemed at maturity at the full face value.
The difference between the discounted price and the face value
determines the yield. The yield on 91-day Treasury bills is
the average discount rate.
How
it's used:
The rate is used as an index for
various variable rate loans, particularly Stafford and PLUS
education loans. Lenders use such an index, which varies, to
adjust interest rates as economic conditions change. They then
add a certain number of percentage points called a margin, which
doesn't vary, to the index to establish the interest rate you
must pay. When this index goes up, interest rates on any loans
tied to it also go up. Back
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Term:
182-day
T-bill auction avg disc rate
What
it means:
The U.S. government issues short-term
debt at a discount at a competitive auction, usually on a weekly
basis. At a discount means the note is sold at a discount from
face value and then redeemed at maturity at the full face value.
The difference between the discounted price and the face value
determines the yield. The yield on 182-day Treasury bills is
the average discount rate.
How
it's used:
The rate is used as an index for
various variable rate loans. Lenders use such an index, which
varies, to adjust interest rates as economic conditions change.
They then add a certain number of percentage points called a
margin, which doesn't vary, to the index to establish the interest
rate you must pay. When this index goes up, interest rates on
any loans tied to it also go up. Back
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Term:
Two-Year
Treasury Constant Maturity
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 two-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. Back
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Term:
Five-Year
Treasury Constant Maturity
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. Back
to leading rates page
Term:
Ten-Year
Treasury Constant Maturity
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 10-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. Back
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Term:
Monthly
Treasury Average (1 year)
What
it means:
An index determined by the monthly
average of one-year Treasury bills.
How
it's used:
It’s an index that is used to set
the cost of various variable-rate loans, particularly adjustable-rate
mortgages. Lenders use such an index, which varies, to adjust
interest rates as economic conditions change. They then add
a certain number of percentage points called a margin, which
doesn’t vary, to the index to establish the interest rate you
must pay. When this index goes up, interest rates on any loans
tied to it also go up. Its use as a loan index is relatively
new. The MTA generally fluctuates more than the 11th
District cost-of-funds index, although they track each other
closely. Back
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Other
indexes
Term:
Bond
Buyer's 20 bond index
What
it means:
Bond Buyer is a daily publication, commonly known as the Red
Book, featuring many essential statistics and index figures
relative to the fixed income markets. This index tracks the
prices of a selected group of municipal bonds.
How
it's used:
It’s an index that is used to set
the cost of municipal debt. It helps indicate the direction
of municipal bond prices, but otherwise has little impact on
most ordinary investors. Back
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Term:
FNMA
30 yr Mtg Com del 60 days
What
it means:
FNMA is the Federal National Mortgage
Association, commonly known as Fannie Mae. Fannie Mae is a corporation
created by Congress to support the secondary mortgage market.
It purchases Federal Home Administration, Veterans Affairs and
conventional mortgages from primary lenders and sells them to
investors. The index measures mortgage commitments (Mtg Com)
for delivery (del) within 30 to 60 days; that is the required
net yield on mortgage loans that lenders sell to FNMA, which
in turn sells them to investors.
How
it's used:
It's an index that is used primarily
by lenders that sell their loans to Fannie Mae. The lenders
use it to price their loans. It has little direct impact on
ordinary investors. Back
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Term:
1
Month LIBOR Rate
What
it means:
LIBOR stands for London Inter Bank
Offer Rate. It's the rate of interest at which banks offer to
lend money to one another in the wholesale money markets in
London. It is a standard financial index used in U.S. capital
markets and can be found in the Wall Street Journal. In general,
its changes have been smaller than changes in the prime rate.
How
it's used:
It's an index that is used to set
the cost of various variable-rate loans. Lenders use such an
index, which varies, to adjust interest rates as economic conditions
change. They then add a certain number of percentage points
called a margin, which doesn't vary, to the index to establish
the interest rate you must pay. When this index goes up, interest
rates on any loans tied to it also go up. Although it is increasingly
used for consumer loans, it has traditionally been a reference
figure for corporate financial transactions. Back
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Term:
6
Month LIBOR Rate
What
it means:
LIBOR stands for London Inter Bank
Offer Rate. It's the rate of interest at which banks offer to
lend money to one another in the wholesale money markets in
London. It is a standard financial index used in U.S. capital
markets and can be found in the Wall Street Journal. In general,
its changes have been smaller than changes in the prime rate.
How
it's used:
It's an index that is used to set
the cost of various variable-rate loans. Lenders use such an
index, which varies, to adjust interest rates as economic conditions
change. They then add a certain number of percentage points
called a margin, which doesn't vary, to the index to establish
the interest rate you must pay. When this index goes up, interest
rates on any loans tied to it also go up. Although it is increasingly
used for consumer loans, it has traditionally been a reference
figure for corporate financial transactions. Back
to leading rates page
Term:
1
Year LIBOR Rate
What
it means:
LIBOR stands for London Inter Bank Offer Rate. It's the rate
of interest at which banks offer to lend money to one another
in the wholesale money markets in London. It is a standard financial
index used in U.S. capital markets and can be found in the Wall
Street Journal. In general, its changes have been smaller than
changes in the prime rate.
How
it's used:
It's an index that is used to set
the cost of various variable-rate loans. Lenders use such an
index, which varies, to adjust interest rates as economic conditions
change. They then add a certain number of percentage points
called a margin, which doesn't vary, to the index to establish
the interest rate you must pay. When this index goes up, interest
rates on any loans tied to it also go up. Although it is increasingly
used for consumer loans, it has traditionally been a reference
figure for corporate financial transactions. Back
to leading rates page
