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Off-the-Run Treasuries

Candlefocus Editor
Off-the-run treasuries, also known as “off-the-shelf” treasuries, refer to U.S. government securities that have been issued before the most recently auctioned issue of a particular security. They are actively traded on the secondary market and are not as liquid or as actively sought by investors as the current issue, which is known as the “on-the-run” issue. Despite this, off-the-run treasuries can still be found in the portfolios of many investors, even large ones, as the risk associated with these securities is quite low and the yields tend to be slightly higher than with on-the-run Treasuries.

Off-the-run treasuries are important when investors are looking to diversify their portfolios away from just the current on-the-run securities. When the market is more volatile, off-the-run treasuries can be a good way to avoid the price swings that come with the most current on-the-run Treasuries. Because the liquidity in off-the-run Treasuries is lower than on-the-run Treasuries, investors can often expect to receive a higher yield. The higher the risk deemed by the investor, the higher the expected return needs to be.

Of course, with any investment there is the associated risk. Off-the-run treasuries are no different, and there are a few key considerations to keep in mind when investing. As the liquidity for these securities is less than for the current on-the-run Treasuries, investors should consider the risks associated with investing in a less liquid security. In addition, the investor should be aware of the possible implications of a credit or payment default by the U.S. government. Since these are U.S. government issued securities, the response of the government in the case of a default is not always clear.

Nonetheless, off-the-run treasuries represent a reliable and secure asset class for investors, especially those who want to access the government bond market but who are looking for a slightly higher yield than they would receive on the current on-the-run Treasuries. Although there is an associated risk associated with non-on-the-run treasuries, the potential return can be worth the additional risk, depending on the investor’s risk tolerance and investment goals.

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