What do constant maturity swaps periodically adjust against?

Constant maturity swaps (CMS) are unique financial instruments that periodically adjust their payments based on a reference rate, which is typically tied to the swap curve for different maturities. This curve reflects the market's expectations of interest rates over various terms and is fundamental in determining the payments associated with a constant maturity swap.

The key element of a CMS is that as market conditions change—especially interest rates—the terms of the swap are adjusted to align with the current or anticipated rates at specific maturities. This characteristic ensures that the swap remains relevant and is valued appropriately in response to evolving interest rate environments.

In this context, the adjustment against the point on the swap curve allows for dynamic management of interest rate risk, enabling the parties involved to maintain a more stable and predictable cash flow over the life of the swap. The swap curve ultimately serves as the foundation for determining the value of the constant maturity swap and its periodic adjustments, making the answer correct with respect to how these financial instruments are structured and operate.

Other choices, such as adjusting against a fixed interest rate or inflation rates, would not reflect the dynamic nature of CMS, while a set equity benchmark relates to equity swaps, which aren't applicable in this context. Therefore, the periodic adjustments made by constant maturity swaps in