On-the-Run Treasuries: Explained, Trading Strategies, and Real-world Scenarios


On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes of a particular maturity. This article explores what they are, how they work, and their advantages and disadvantages, providing insights for both new and seasoned investors.

Understanding on-the-run treasuries

When delving into the world of fixed-income securities and government bonds, it’s essential to grasp the concept of “On-the-Run Treasuries.” These are the most recently issued U.S. Treasury bonds or notes for a specific maturity. To gain a comprehensive understanding of On-the-Run Treasuries, let’s explore this topic in greater detail.

What are on-the-run treasuries?

On-the-run Treasuries are the latest additions to the treasury universe. These are the U.S. Treasury bonds or notes that have been most recently issued for a specific maturity, such as 2-year, 5-year, 10-year, or 30-year. They are considered the “top picks” when it comes to trading and investment in the U.S. government bond market.

How on-the-run treasuries work

The mechanics of On-the-Run Treasuries are fascinating. Being the most recent issuance, these securities are in high demand and tend to trade at a slight premium, which means they yield slightly less compared to their “off-the-run” counterparts.

An interesting strategy employed by some traders involves taking advantage of this price differential through arbitrage. They may sell On-the-Run Treasuries (going short) and purchase Off-the-Run Treasuries, hoping to capitalize on the price spread.

Treasury securities, in general, are viewed as low-risk investments due to their status as debts owed by the U.S. federal government. The government issues these securities to fund various expenses, and the newest batch is categorized as On-the-Run Treasuries.

On-the-run vs. off-the-run treasuries

A significant characteristic of On-the-Run Treasuries is that they transition into Off-the-Run Treasuries once a newer set of the same maturity is issued. For instance, if one-year Treasury notes are issued today, they become the On-the-Run Treasuries for that particular maturity.

As time progresses, if another set of Treasury notes is issued, those become the new On-the-Run Treasuries, and the previously issued ones are considered Off-the-Run. This cycle continues, with each new batch being categorized as On-the-Run, and the rest deemed Off-the-Run until they mature.

Due to the high trading activity and demand, On-the-Run Treasuries tend to have higher initial costs and lower yields compared to their Off-the-Run counterparts. This results in greater liquidity, making it easier to find buyers for these securities.

Historical significance of on-the-run treasuries

The history of On-the-Run Treasuries is rich and intertwined with the economic landscape of the United States. These bonds have played a vital role in financing the government’s operations, including funding wars and infrastructure projects. For example, during World War II, the issuance of On-the-Run Treasuries saw a significant uptick to support the war effort. Understanding this historical context can provide valuable insights into the significance of these securities in times of national importance.

Real-world example of on-the-run vs. off-the-run

To illustrate the practical implications of On-the-Run and Off-the-Run Treasuries, let’s consider a real-world scenario. Imagine you are an institutional investor looking to purchase a substantial quantity of U.S. Treasury bonds. You have two options: On-the-Run and Off-the-Run Treasuries.

On-the-Run Treasuries would be the latest issuances, offering high liquidity but at a slightly higher cost. They are suitable if you need to engage in frequent trading or if you’re looking for a benchmark for your investments. On the other hand, Off-the-Run Treasuries, though less liquid, might provide a more cost-effective option if you plan to hold the bonds until maturity.

This example demonstrates the choices and considerations faced by investors when dealing with these different types of Treasury securities.

The role of on-the-run treasuries in the yield curve

The yield curve is a critical indicator in the bond market, showing the relationship between the interest rates (or yields) and the maturities of Treasury securities. On-the-Run Treasuries play a pivotal role in shaping the yield curve. Due to their frequent issuance and trading, they often serve as the benchmark points for specific maturities on the curve.

Investors and analysts closely watch the yields of On-the-Run Treasuries to gauge market sentiment and predict future interest rate movements. The yields of Off-the-Run Treasuries are influenced by the yields of their On-the-Run counterparts, making these bonds essential in the broader economic landscape.

Investor strategies for on-the-run treasuries

Investors employ various strategies when dealing with On-the-Run Treasuries. These strategies depend on factors like their risk tolerance, investment horizon, and market conditions. Some common strategies include:

Liquidity Trading: Short-term traders often take advantage of the liquidity and price differentials between On-the-Run and Off-the-Run Treasuries for quick profits.

Benchmarking: Asset managers may use On-the-Run Treasuries as benchmarks for their portfolios, aiming to achieve returns in line with these widely-referenced securities.

Interest Rate Forecasting: Investors and analysts closely monitor On-the-Run yields to make predictions about the direction of interest rates and adjust their portfolios accordingly.

Duration Matching: By matching the duration of their investments with that of On-the-Run Treasuries, investors can effectively manage interest rate risk.


On-the-Run Treasuries, while straightforward in their concept, play a significant role in the complex world of fixed-income securities and government bonds. They offer liquidity, safety, and serve as important reference points in the U.S. Treasury market and the broader financial landscape. Understanding their historical significance, real-world applications, and their role in shaping the yield curve can empower investors to make informed decisions in this critical segment of the bond market.

Frequently asked questions

What determines which Treasury bonds or notes become on-the-run treasuries?

On-the-run Treasuries are the most recently issued for a specific maturity, but what drives the selection of which bonds or notes become on-the-run?

Do on-the-run treasuries have a significant impact on the broader financial market?

Are the trading and dynamics of on-the-run Treasuries influential enough to affect the entire financial landscape?

How do investors incorporate on-the-run treasuries into their investment portfolios?

What strategies do investors use to make the most of the advantages that on-the-run Treasuries offer?

Can off-the-run treasuries become on-the-run again?

Is it possible for off-the-run Treasuries to transition back into on-the-run status, or are they permanently categorized as off-the-run?

What role do on-the-run treasuries play in government funding and debt management?

How do these newly issued Treasury securities contribute to the government’s financial operations and national debt management?

Are there risks associated with investing in on-the-run treasuries, and how can they be mitigated?

What potential downsides should investors be aware of when considering on-the-run Treasuries, and what risk management strategies can be employed?

Key takeaways

  • On-the-Run Treasuries are the most recently issued U.S. Treasury bonds or notes for a specific maturity.
  • They are considered highly liquid and trade at a premium compared to Off-the-Run Treasuries.
  • Investors may pay a premium for the liquidity and safety of On-the-Run Treasuries.
  • On-the-Run Treasuries are essential benchmarks in the U.S. Treasury market and frequently referenced by the media.
View Article Sources
  1. Evidence from Treasuries Going off the Run – JSTOR
  2. The On-The-Run Liquidity Phenomenon – Michigan Ross – Michigan Ross
  3. A Model of the Convenience Yields in On-the-Run Treasuries – RePEc EconPapers