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.
Meanwhile, new entrants such as PTFs, previously active mostly in equities and futures markets, are increasingly competing with traditional dealers for market share in standardized products such as on-the-run Treasuries
(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
. This paper has studied transactions from eSpeed for 2004, a data set that has not yet been explored in the literature, and documented improvements over the earlier voice-assisted technology.
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.
Dealers hedge a variety of fixed-income securities by taking short positions in on-the-run Treasuries. For example, dealers hedge mortgage-backed securities by selling short the on-the-run ten-year Treasury note.
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.
It is where market participants go to hedge interest rate risks, whether for on-the-run Treasuries
or futures contracts.
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.(12) After the crisis, spreads remained high on the five-year note and the thirty-year bond, they increased for the ten-year note, but they declined for the two-year note.