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The benchmark interest rate is the lowest interest rate that an investor will accept for a non-Treasury investment. The benchmark interest rate is also known as the base interest rate or the threshold interest rate since the benchmark interest rate is the threshold below which investors refuse to invest funds. The benchmark interest rate is tied to the interest rate offered on the most recently-issued (on-the-run) Treasury security. Often investors demand that the benchmark interest rate carries a premium over the most recently-issued Treasury security. Since it is generally possible for investors to find investments paying a greater rate than the benchmark interest rate, one of the hallmarks of an investment which pays the benchmark interest rate is safety. The benchmark interest rate is often associated with conservative and safe investments. |
