What Is the Monthly Treasury Average?

The Monthly Treasury Average (MTA) is a common interest rate index used primarily in adjustable-rate mortgages (ARMs) and certain consumer loans. It reflects the average yield of U.S. Treasury securities with maturities of one year, calculated over a one-month period. Lenders use this index to determine the interest rate adjustments for loans that reset periodically. Because it is based on the performance of U.S. government debt instruments, the MTA is viewed as a relatively stable and transparent benchmark.

Unlike other indexes that react quickly to changes in short-term interest rates, the MTA tends to move more gradually. This quality can appeal to borrowers who prefer predictable, slower-moving changes to their loan payments.

How the MTA Is Calculated

The MTA is calculated by averaging the daily yields of one-year U.S. Treasury securities over a specific calendar month. These yields are published by the Federal Reserve and reflect the return investors demand for lending money to the U.S. government for a one-year period. At the end of the month, the daily figures are added together and divided by the number of days in the month to arrive at the average.

This average is usually published in the following month, which introduces a lag between when the yields are measured and when they influence loan interest rates. For example, the MTA for March would be based on the average of daily one-year Treasury yields during March and would typically be published in early April.

Role in Adjustable-Rate Mortgages

In mortgage lending, the MTA serves as the index portion of the variable interest rate formula. The fully indexed rate is calculated by adding the MTA to a fixed margin determined by the lender. For example, if the MTA is 3.00% and the margin is 2.25%, the new interest rate would be 5.25%.

Lenders may use the MTA in ARM products with various adjustment frequencies, such as annually or semi-annually. Because the MTA is a monthly average of daily rates, it smooths out short-term volatility and can provide a less reactive basis for interest rate changes compared to indexes like the 1-Year Constant Maturity Treasury (CMT) or the Secured Overnight Financing Rate (SOFR).

This characteristic means that MTA-based ARMs may not rise or fall as quickly as those linked to other indexes, which can be beneficial in times of economic uncertainty. However, the lag in its publication can delay the reflection of market changes in loan rates, which may be a disadvantage when interest rates are falling rapidly.

Comparison to Other Interest Rate Indexes

The MTA is often compared to other commonly used ARM indexes, such as:

• 1-Year CMT: A more responsive index that uses the yield of one-year Treasury securities on a specific day, rather than an average over a month. This makes the 1-Year CMT more sensitive to sudden rate changes.
• SOFR: A newer benchmark replacing LIBOR in many financial products. It reflects overnight borrowing rates and is considered more volatile, especially in its unaveraged form.
• COFI (Cost of Funds Index): Based on the interest-related expenses of savings institutions, COFI moves more slowly than MTA and tends to lag behind market interest rate trends even more.

Among these, the MTA occupies a middle ground. It reacts more slowly than daily or weekly indexes but more promptly than indexes tied to institutional costs.

Applications Beyond Mortgages

While the MTA is most commonly associated with mortgages, it may also appear in other types of loans. Some home equity lines of credit (HELOCs), credit cards, and private loan agreements reference the MTA as a benchmark for setting variable interest rates. However, its use outside of mortgage lending has declined, especially with the rise of newer benchmarks like SOFR.

Declining Use in the Market

Historically, the MTA was more prevalent, especially among lenders operating in the western United States. In recent years, its usage has decreased significantly. This shift is partly due to changes in regulatory standards and the broader movement away from legacy benchmarks like LIBOR. As financial institutions update their practices, many have adopted indexes with more frequent publication and greater global relevance.

Additionally, because the MTA relies on U.S. Treasury data, its future depends on continued data publication by the U.S. government. While there has been no indication of discontinuation, lenders and loan servicers are increasingly adopting alternative indexes with broader institutional support and industry momentum.

Risks and Considerations for Borrowers

Borrowers with loans tied to the MTA should understand how the index behaves relative to market conditions. While it offers smoother adjustments, this feature can work against borrowers in a declining rate environment, as it may take longer for interest rate reductions to translate into lower monthly payments.

Another important factor is the margin set by the lender. Even if the MTA remains low, a high margin can result in higher overall borrowing costs. Additionally, most ARMs include caps on how much the interest rate can adjust at each interval and over the life of the loan. These caps play a key role in determining how much impact the MTA has on payment amounts.

The Bottom Line

The Monthly Treasury Average (MTA) is a Treasury-based interest rate index used to calculate interest rate changes for adjustable-rate loans. Known for its slower, more stable movement, it offers borrowers some protection from short-term volatility. However, that same stability may result in slower benefits when interest rates decline. Its popularity has waned in favor of newer benchmarks like SOFR, but it remains relevant in legacy loans and certain regional markets. Understanding the MTA is essential for borrowers with loans tied to this index, especially when evaluating the potential impact of interest rate movements.