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.

BREAKING DOWN '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.

Treasuries are considered to be a lower risk than some other investment options, as they are debts owed by the Federal Government. They are issued by the Treasury for the purpose of raising revenue for government expenses. As Treasuries are created and sold, the newest batch becomes the on-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.

Long-term investors do not need to purchase on-the-run Treasuries at the higher price, since the included return or interest rates tend to be similar. The price difference between on-the-run and off-the-run Treasuries is often referred to as the liquidity premium, as the more liquid Treasuries are obtained at a higher cost. If liquidity is not a concern, the investor will likely look for more cost-effective options.

RELATED TERMS
  1. Off-The-Run Treasury Yield Curve

    The U.S. Treasury yield curve derived using off-the-run treasuries. ...
  2. Off-The-Run Treasuries

    All Treasury bonds and notes issued before the most recently ...
  3. On-The-Run Treasury Yield Curve

    The U.S. Treasury yield curve derived using on-the-run treasuries. ...
  4. Interpolated Yield Curve - I Curve

    A yield curve derived by using on-the-run treasuries. Because ...
  5. Spot Rate Treasury Curve

    A yield curve constructed using Treasury spot rates rather than ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
Related Articles
  1. Investing

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  2. Investing

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  3. Investing

    What is Reduced Bond Liquidity and Why Does it Matter Now?

    Reduced bond liquidity caused investor concern earlier in the year, but some signs point to a resurgence going forward.
  4. Investing

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  5. Investing

    What's a 10-Year Treasury Note?

    A 10-year Treasury note is an intermediate debt obligation issued by the United States government, and with a ten-year maturity date.
  6. Investing

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
  7. Financial Advisor

    Top 4 Treasurys ETFs (SHY, IEI)

    Learn about the specifics of the top four U.S. Treasury ETFs and how investors can buy ETFs that invest in bonds along the yield curve.
  8. Investing

    Buy Treasuries Directly From The Fed

    If you want government securities, go straight to the source. We'll show you how.
  9. Insights

    Understanding The Treasury Yield Curve Rates

    Treasury yield curves are a leading indicator for the future state of the economy and interest rates.
  10. Investing

    How Bond Market Pricing Works

    Yield is the commonest measure used to determine a bond’s expected return. Yield-to-maturity and spot rates are the two primary yield measures.
RELATED FAQS
  1. What is meant by off-the-run treasuries?

    Understand what is meant by off-the-run Treasuries, along with the key differences in yield that commonly occur between on- ... Read Answer >>
  2. Why are treasury bond yields important to investors of other securities?

    Learn about the wide-ranging impact of U.S. Treasury Bond yields on all other interest-bearing instruments in the economy ... Read Answer >>
  3. Which economic factors impact treasury yields?

    Discover the economic factors that impact Treasury yields. Treasury yields are the benchmark yield for the rest of the world, ... Read Answer >>
  4. What is the difference between the Daily Treasury Long-Term Rates and the Daily Treasury ...

    Find out more about the daily Treasury long-term rates, daily Treasury yield curve rates and the difference between these ... Read Answer >>
  5. What are the maturity terms for Treasury bonds?

    Learn how treasury bonds pay interest, when they reach maturity and the differences between terms for treasury bonds and ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center