On-the-Run Treasuries

On-the-Run Treasuries

The most recently issued set of U.S. Treasury securities with a certain maturity. For example, if the Treasury issues one year notes in May, June, and July, and it is now August, the on-the-run Treasuries are those issued in July. On-the-run Treasuries are the most actively traded Treasury securities and as a result have a slightly lower yield than off-the-run Treasuries.
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Building on our success in on-the-run Treasuries our network of participants can now access off-the-run liquidity from three of the largest banks in the world and be confident they are executing in a fair and efficient relationship-based electronic trading environment.
36) Similarly, if the TIPS market were as liquid as the market for on-the-run Treasuries, the Treasury would have realized a total cost savings from the TIPS program of $28 billion to $37 billion.
The eSpeed and BrokerTec ECNs have captured virtually the entire market for the on-the-run Treasuries.
On-the-run Treasuries are the most recently auctioned Treasuries and thus are typically traded more frequently.
20) Of course, off-the-run Treasuries will mature one or two auction cycles earlier than on-the-run Treasuries with the same maturity, but the yield spreads used here have already been adjusted for this slight difference in maturity.
Dealers sell short on-the-run Treasuries in order to hedge the interest rate risk in other securities.
As noted above, on-the-run Treasuries are more liquid than older Treasuries; indeed, on-the-run Treasuries are perhaps the most liquid securities in the world.
In order to calibrate the pricing model so that the on-the-run Treasuries are repriced exactly, the theoretical discount function (5) must agree with the discount function derived from the observed current Treasury prices at all nonnegative levels of interest rate volatility.
Typically, on-the-run Treasuries are traded the most and enjoy the most liquid market.
The top of Chart 5 shows the average yields of 10-year off-the-run Treasuries and of 10-year on-the-run Treasuries.
It is where market participants go to hedge interest rate risks, whether for on-the-run Treasuries or futures contracts.
On-the-run Treasuries generally became relatively more valuable as investors sought not only the safety of Treasury securities but also the liquidity of the on-the-run issues in the so-called flight to liquidity.