Journal of Financial and Quantitative Analysis Vol. 8 No. 5 1973
The Equilibrium Spread Between Variable Rates and Fixed Rates on Long-Term Financing Instruments
Abstract
One of the most important innovations in bond financing and in mortgage lending has been the rapid adoption of variable-rate instruments in recent years. Notes and bonds bearing an interest rate between one and two percentage points above the prime rate are becoming common in corporate financing. Similarly, variable-rate mortgages (VRM's) with the interest rate tied to the deposit rate of S&L's or linked to the changing yields on competing investments have spread beyond Florida and California to many states. The Federal Home Loan Bank Board has recently endorsed the variable-rate concept and the Federal Home Loan Mortgage Corporation is preparing guidelines for secondary market operations in VRM's. Portfolio managers are thus taking note of the possibility of acquiring long-term instruments providing some of the resiliency of yields and a measure of real value protection characteristic of short-term issues.
- DOI
- 10.2307/2329984
- Volume
- 8
- Issue
- 5
- Pages
- 807
- Sources
- openalex crossref