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The base interest rate is the lowest interest rate that investors will accept for investing in a non-Treasury security. The base interest rate is pegged to the interest rate of the most recently-issued (also known as an on-the-run) Treasury of comparable duration. Since Treasuries represent the lowest-risk investment available, the base interest rate is generally the same rate as a comparable Treasury plus a small premium (known as the base interest rate premium) which reflects the added risk of a non-Treasury investment. When an interest rate is offered that is substantially higher than the base interest rate, it is often because the investment has an inherent added risk. The base interest rate is also known as the benchmark interest rate. |
