Off-the-Run Treasuries
Candlefocus EditorOff-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.