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CandleFocus Glossary Editor
On-the-run Treasuries are U.S. government obligations with a fixed maturity and a fixed coupon. The Treasury Department issues three new sets of Treasuries each month: on the second Thursday in each month, intermediate-dated Treasuries maturities ranging from three to ten years are released; on the third Thursday in each month notes maturities of two to three years are released; and on the fourth Thursday in each month bills maturities of one year or less are released.
Because the yield and liquidity of the newest Treasuries is most attractive to market participants, on-the-run Treasuries tend to be the most actively traded. Their features make them a popular choice for investors who want stability and a predictable return.
The difference between on-the-run and off-the-run Treasuries lies in their liquidity. On-the-run Treasuries have the highest trading volumes, while off-the-run Treasuries tend to be more illiquid. This means that off-the-run Treasuries require more time to buy and sell, which can limit the nature of trading strategies. On-the-run Treasuries also tend to offer a higher return than off-the-run Treasuries, even with the same interest rate, maturity and coupon payment.
Trading on-the-run Treasuries in the secondary market can take the form of outright transactions or transactions of a derivatives nature, such as futures and options on Treasuries. Cash and cash-settled futures are employed to establish risk exposure in the underlying debt. Though illiquidity is a downside relative to cash securities, futures and options offer the ability to transfer exposure while keeping the investment principal intact.
On-the-run Treasuries are attractive investments as they have the potential to increase in value as the underlying interest rate decreases and vice versa. They are seen by many as a safe haven investment, offering low risk exposure and a guaranteed rate of return. Although they may not offer the highest return available, they offer predictability, liquidity and stability. As a result, they are widely used by institutional investors and individuals.
Because the yield and liquidity of the newest Treasuries is most attractive to market participants, on-the-run Treasuries tend to be the most actively traded. Their features make them a popular choice for investors who want stability and a predictable return.
The difference between on-the-run and off-the-run Treasuries lies in their liquidity. On-the-run Treasuries have the highest trading volumes, while off-the-run Treasuries tend to be more illiquid. This means that off-the-run Treasuries require more time to buy and sell, which can limit the nature of trading strategies. On-the-run Treasuries also tend to offer a higher return than off-the-run Treasuries, even with the same interest rate, maturity and coupon payment.
Trading on-the-run Treasuries in the secondary market can take the form of outright transactions or transactions of a derivatives nature, such as futures and options on Treasuries. Cash and cash-settled futures are employed to establish risk exposure in the underlying debt. Though illiquidity is a downside relative to cash securities, futures and options offer the ability to transfer exposure while keeping the investment principal intact.
On-the-run Treasuries are attractive investments as they have the potential to increase in value as the underlying interest rate decreases and vice versa. They are seen by many as a safe haven investment, offering low risk exposure and a guaranteed rate of return. Although they may not offer the highest return available, they offer predictability, liquidity and stability. As a result, they are widely used by institutional investors and individuals.