The U.S. Department of the Treasury has announced changes to the Treasury Long-Term Average Rate and Extrapolation Factors, impacting how the 30-year constant maturity series is computed. These changes were implemented on June 30, 2023.
Since February 18, 2002, the Treasury had ceased publication of the 30-year constant maturity series, introducing instead the “LT>25” (Long-Term Average Rate) from February 19, 2002, until May 28, 2004. However, on June 1, 2004, the “LT>25” average was discontinued due to a lack of eligible bonds.
In place of the “LT>25” average, the Treasury introduced the Treasury 20-year Constant Maturity rate along with an extrapolation factor that was added to the 20-year rate to estimate a theoretical 30-year rate. This provided interested parties with a way to compute an estimated 30-year rate using the extrapolation factor.
However, on February 9, 2006, the Treasury reintroduced the 30-year constant maturity rate, leading to the discontinuation of publishing the extrapolation factor.
The Long-Term Average Rate (“LT>25”) was calculated as the arithmetic average of the bid yields on all outstanding fixed-coupon securities with 25 years or more remaining to maturity. It first appeared on February 19, 2002, after the discontinuation of the 30-year Treasury constant maturity series, and was later discontinued on June 1, 2004.
The Linear Extrapolation Factors were previously used to determine a 30-year proxy rate by considering the slope of the yield curve at its long end and extrapolating out to a theoretical 30-year point. To obtain a 30-year theoretical rate, the factor was added to the 20-year Constant Maturity Rate.
Now, with the reintroduction of the 30-year constant maturity rate, the Treasury Long-Term Composite Rate is the unweighted average of bid yields on all outstanding fixed-coupon bonds neither due nor callable in less than 10 years.
Market participants and investors should take note of these changes in the computation of the 30-year constant maturity rate and make appropriate adjustments in their financial calculations and models.