What Are Off-The-Run Treasuries?

Off-the-run treasuries are all Treasury bonds and notes issu𝕴ed before the most recently issued bond or note of a particular maturity.

Off-the-run treasuries can be contrasted with on-the-run treasuries, which refer to the newest issues only.

Off-The-Run Treasuries Explained

When the 澳洲幸运5开奖号码历史查询:U.S. Treasury issues securities – Treasury notes, and bonds – it does so through an 澳洲幸运5开奖号码历史查询:auction process to determine the price at which these debt instruments will be offered. Based on the bids received and the level of interest shown for the security, the U.S. Treasury is able to set a price for its debt securities. The new issues presented after the auction is closed are🧸 referred to as on-the-run Treasuries. Once a new Treasury security of any maturity is issued, the previously issued security with the same maturity becomes the off-the-run bond or note.

For♕ example, if the U.S. Treasury newly issued 5-year notes in February, these notes are on-the-run and replace the previously issued 5ꦓ-year notes, which become off-the-run. In March, if another batch of 5-year bonds is issued, these March notes are on-the-run Treasuries and the February notes are now off-the-run. And so on.

Where to Trade Off-The-Run Treasuries

While on-the-run Treasuries are available to be purchased from 澳洲幸运5开奖号码历史查询:Treasury Direct, off-the-run securities can only be obtained from other investors through the 澳洲幸运5开奖号码历史查询:secondary market. When Treasuries move to the secondary over-the-counter market, they become less frequently traded as♋ investors prefer to go for more liquid securities (which are a characteristic of on-the-run Treasuries). To encourage investors to purchase these debt securities readily in the market, off-the-run Treasuries are typically less expensive and carry a slightly greater yield.

Since off-the-run Treasuries have a higher yield and lower price than on-the-run Treasuries, there is a notable 澳洲幸运5开奖号码历史查询:yield spread between both offerings. One reason for the yield spread is the concept of supply. On-the-run Treasuries are typically issued with a fixed supply. The high demand for the limited securities pushes up their prices and, in turn, lowers the yield, causing a difference to ensue between the yields for on-the-run and off-the-run securities. In addition, off-the-run securities are mostly held to maturity in an asset manager’s portfolio as there’s not much reason to trade them. On the other hand, when portfolio managers need to shift their exposure to 澳洲幸运5开奖号码历史查询:interest rate risk and find 澳洲幸运5开奖号码历史查询:arbitrage opportunities, they trad♏e on-the-run Treasuries, creating liquidity for these securities😼.

Off-The-Run Yield Curves

Although on-the-run treasury yield can be used to construct an 澳洲幸运5开奖号码历史查询:interpolated yield curve, which is used to determine the price of debt securities, some analysts prefer to use the yield of off-the-run Treasuries to draw the 澳洲幸运5开奖号码历史查询:yield curve. Off-the-run yields are used in cases where the demand for on-the-run Treasuries are inconsistent, thereby, causing price distortions caused by the fluctuating current demand. By deriving yield curve figures from the 澳洲幸运5开奖号码历史查询:off-the-run Treasury rates, financial analysts can ens𝓀ure that temporary flu▨ctuations in demand do not skew the yield curve calculations or the pricing of fixed income investments.