Product Details

by Steven J. Williams
Spring 2002 issue

It used to be that providing a borrower a rate commitment based on an index was a relatively simple process.1 A lender would simply choose a U.S.treasury note ("treasury") of comparable maturity or duration and then would tie its rate to the yield of that instrument. When it came time to fund, both the borrower and lender would look at the current yield of the referenced treasury note and then adjust the interest rate of the loan accordingly. This practice is known as float-to-fix pricing and occurs every day in the equipment finance industry. However, the recent volatility of U.S. treasury yields have called into question the applicability of the security as an index for middle-market equipment financings. This article will look at the question from both empirical and analytical perspectives.