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On-The-Run Treasuries

What are 'On-The-Run Treasuries'

On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes of a particular maturity. "On-the-run" Treasuries are the opposite of "off-the-run" Treasuries, which refer to Treasury securities that have been issued before the most recent issue and are still outstanding. Media mentions about Treasury yields and prices generally reference "on-the-run" Treasuries.

Explaining 'On-The-Run Treasuries'

The on-the-run bond or note is the most frequently traded Treasury security of its maturity. Because on-the-run issues are the most liquid, they typically trade at a slight premium and therefore yield a little less than their off-the-run counterparts. Some traders successfully exploit this price differential through an arbitrage strategy that involves selling, or going short, on-the-run Treasuries and buying off-the-run Treasuries.

Understanding the Transition From On-the-Run to Off-the-Run

A Treasury transitions from on-the-run to off-the-run once a newer set of Treasuries is released for sale. For example, if one-year Treasury notes are issued today, those would be the current on-the-run Treasuries. If another set of Treasury notes get issued in the next month, those become the new on-the-run Treasuries, and the previously issued Treasuries are considered off-the-run. This cycle continues as each new batch is created, with every group other than the newest run considered off-the-run for the rest of its associated time, until it is cashed in upon reaching maturity.

Value Difference in On-the-Run and Off-the-Run Treasuries

The most actively traded Treasuries at any point in time are those that are considered on-the-run. Due to the increased activity, they tend to have a higher initial cost and lower yield than off-the-run notes. This causes on-the-run Treasuries to be more liquid, as finding a buyer tends to be simpler than off-the-run options. This leads to more investments relating to hedging than to longer-term investments.


Further Reading


A Model of the Convenience Yields in On-the-run Treasuries
link.springer.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

Term structure estimation from on-the-run TreasuriesTerm structure estimation from on-the-run Treasuries
www.sciencedirect.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

Who makes on-the-run Treasuries special?Who makes on-the-run Treasuries special?
papers.ssrn.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

Who makes on-the-run Treasuries special?Who makes on-the-run Treasuries special?
www.sciencedirect.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

The on-the-run liquidity phenomenonThe on-the-run liquidity phenomenon
www.sciencedirect.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

The US Treasury yield curve: 1961 to the presentThe US Treasury yield curve: 1961 to the present
www.sciencedirect.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

The effect of transaction size on off-the-run Treasury pricesThe effect of transaction size on off-the-run Treasury prices
www.jstor.org [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

A search‐based theory of the on‐the‐run phenomenonA search‐based theory of the on‐the‐run phenomenon
onlinelibrary.wiley.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

The price of future liquidity: Time-varying liquidity in the US Treasury marketThe price of future liquidity: Time-varying liquidity in the US Treasury market
academic.oup.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …

Flow and stock effects of large-scale treasury purchases: Evidence on the importance of local supplyFlow and stock effects of large-scale treasury purchases: Evidence on the importance of local supply
www.sciencedirect.com [PDF]
… From a utility perspective, economic equilibrium would require arbitrageurs to have a strictly positive marginal util- ity with a binding wealth … MODEL OF CONVENIENCE YIELDS IN ON-THE-RUN TREASURIES … Treasury bonds, we need not concern ourselves with risk premiums …



Q&A About On-The-Run Treasuries


Why do some indices hold only on -the -run contracts ?

To make trading easier .

When does an instrument become off -the -run ?

When there is a new issue .

What happens when a new security is issued?

The new security becomes the on the run security and all other older issues become off the run securities.

What does an on-the-run security represent?

An on-the-run security represents the most recently issued and hence most liquid of a periodically issued security.

What is the difference between off-the-run and on-the run securities?

Off the run securities are older issues that trade at a discount to on the run securities.

Where do treasury auctions take place?

Treasury auctions take place in Washington, D.C..

What does it mean to roll over a contract?

Rolling over a contract means buying one contract while selling another. This allows investors to maintain their exposure without having to buy or sell contracts as they mature. Rolling also helps reduce transaction costs for investors by allowing them to avoid trading during times of high volatility in interest rates (i.e., when yields change). It also reduces market impact because it allows investors to trade with fewer shares than would be required if they were not rolling their positions from one maturity date to another. For example, if you have $1 million invested in 10 different bonds with various maturities, you could roll your position so that you only need $100,000 worth of bonds maturing each month instead of needing $1 million worth of bonds maturing each month."

What is On-The-Run Treasuries?

On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes of a particular maturity.

How often are treasury auctions held?

Treasury auctions occur every week.

What is convergence trading ?

Convergence

How does an on-the run security transition from being on the run to being off the run?

A Treasury transitions from on -the -run to off -the -run once a newer set of Treasuries is released for sale. For example, if one year Treasury notes are issued today, those would be the current on -the -run Treasuries . If another set of Treasury notes get issued in the next month, those become the new on -the -run Treasuries , and the previously issued Treasuries are considered off -the -run . This cycle continues as each new batch is created , with every group other than the newest run considered off –the – run for the rest of its associated time , until it is cashed in upon reaching maturity . The most actively traded trea suries at any point in time are those that are considered on –t he – run . Due to t he increased activity , they tend to have a higher initial cost and lower yield than o ff –t he – r un notes . This causes o n–t h e–r un trea suries to be more liquid , as finding a buyer tends to be simpler than o ff–t h e–r un options . T his leads t o more investments relating t o hedging th an t o longer term investments .""