Off-The-Run Treasury Yield Curve

What Is Off-The-Run Treasury Yield Curve?

Off-the-run treasury yield curve graphically depicts the maturities and yields of U.S. Treasury securities that were issued prior to the most recent issuance.

Key Takeaways

  • Off-the-run treasury yield curve graphically depicts the maturities and yields of U.S. Treasury securities that were issued prior to the most recent issuance.
  • Off-the-run means that they are not part of the most recently issued treasuries, which are called on-the-run treasuries and the corresponding yield curve is termed on-the-run treasury yield curve.
  • Off-the-run treasuries are particularly useful as their yields are more stable than their newer brethren, thus the off-the-run treasury yield curve tends to smooth the distortions inherent in the on-the-run treasury yield curve.

Understanding Off-The-Run Treasury Yield Curve

Off-the-run Treasuries refer to U.S. government bonds of a given maturity that are not the most recently issued. A government bond is a debt security issued to support government spending. Federal government bonds in the United States include savings bonds, Treasury bonds (T-bonds), and Treasury inflation-protected securities (TIPS). 

Off-the-run means that they are not part of the most recently issued treasuries, which are called on-the-run treasuries and the corresponding yield curve is termed on-the-run treasury yield curve. A yield curve is important because it actually determines a benchmark for pricing bonds.

On-the-run treasuries are prone to price distortions caused by the fluctuations in current demand. Off-the-run treasuries are particularly useful as their yields are more stable than their newer brethren, thus the off-the-run treasury yield curve tends to smooth the distortions inherent in the on-the-run treasury yield curve.

On-the-run treasuries are the most actively traded Treasury securities. They are estimated to account for more than half of daily trading volumes. However, they still actually make up less than 5 percent of outstanding marketable Treasury securities. The rest of the Treasury debt is known as off-the-run Treasuries. The difference between the amount of on-the-run and off-the-run securities can also influence the pricing between the two securities.

Off-The-Run Treasury Yield Curve Example

The on-the-run treasury yield curve is the primary benchmark used for pricing fixed-income securities. However, fixed-income analyticsrun by investors and tradersuse a basis of the off-the-run Treasury yield curve. These investors believe the on-the-run treasury yield curve has price distortions caused by current market demand for the on-the-run bonds. 

To picture how the off-the-run Treasury yield curve works, think of a timeline when the U.S. Treasury issues bonds. When 10-year bonds are first issued in January of a year, those bonds are considered "on-the-run" Treasuries. This status is because they are most relevant or the latest edition. But later during the year, if the U.S. Treasury should release a new batch of 10-year bonds, the new batch becomes the on-the-run issue, and the January batch becomes the off-the-run Treasuries. The yield curve is then calculated using only the Treasuries that are off-the-run.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. James Clark, Chris Cameron, Gabriel Mann. "Examining Liquidity in On-the-Run and Off-the-Run Treasury Securities." U.S. Department of the Treasury, 2016.

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description