On-the-Run vs Off-the-Run
On-the-run is the most recently auctioned, most liquid Treasury at each maturity; off-the-run are older issues that trade at a slightly higher yield.
On-the-run Treasuries are the most recently auctioned securities at each benchmark maturity (the current 2-, 5-, 10-, 30-year, etc.). They are the most actively traded, most liquid issues — the ones quoted when the market refers to "the 10-year yield." Once the Treasury auctions a newer security at that maturity, the prior one becomes off-the-run.
Off-the-run issues have nearly identical credit and cash flows but trade less frequently, so they carry a small liquidity premium: they yield a few basis points more (price a touch lower) than the on-the-run benchmark. This gap is the on-the-run/off-the-run spread, a standard real-time gauge of liquidity conditions in the Treasury market.
The practical edge: the spread widens sharply in stress (it blew out in March 2020 as investors dumped everything for the most liquid bonds), and relative-value desks trade it as a mean-reverting pair. Buy-and-hold investors often prefer cheaper off-the-run bonds to harvest the extra yield.
Related Terms
Bond Yield
The return an investor earns by holding a bond — driven by its price, coupon, and time to maturity. Moves inversely with price.
BeginnerLiquidity
How easily you can enter or exit a position without moving the price. High liquidity = tight spreads, deep order books, fast fills.
BeginnerT-Note
U.S. Treasury notes with maturities of 2, 3, 5, 7, or 10 years, paying semi-annual coupon interest — the most widely traded government securities.
IntermediateTreasury Auction
The regular process by which the U.S. government sells new Treasury securities to investors via competitive and non-competitive bidding.
IntermediateTreasury Security
Debt issued by the U.S. federal government through the Treasury Department — the benchmark risk-free asset in global finance.
Beginner