Off-the-Run Treasuries are United States Treasury securities that were issued in prior auctions and are no longer considered the most recently issued benchmark bonds for their respective maturities. These bonds typically exhibit lower trading liquidity compared to their “on-the-run” counterparts, leading to distinct pricing characteristics in the secondary market.
Mechanism
The market mechanism for Off-the-Run Treasuries involves over-the-counter trading, often characterized by less frequent price updates and wider bid-ask spreads than more liquid on-the-run issues. Their valuation is derived from prevailing market yields, considering factors like remaining maturity and coupon rate, but liquidity constraints can cause temporary price dislocations.
Methodology
Institutional investors, including those with crypto asset allocations, sometimes utilize Off-the-Run Treasuries for portfolio diversification or to exploit perceived value discrepancies when their yields become attractive relative to on-the-run issues. Trading strategies may involve targeting specific yield curve exposures or arbitraging pricing differences, requiring careful assessment of liquidity and market depth to manage execution risk effectively within broader investment strategies.
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