On-the-run Treasuries are the most
currently issued Treasury bonds or notes.
It is the most commonly traded form of a
Treasury note of a specific maturity. The on-the-run Treasury is significantly
more liquid than other forms of securities. Therefore, they tend to trade at a
premium.
Off-the-run Treasuries refer to debt instruments
issued by the US Treasury that are not the latest offering.
Long Term Capital Management (LTCM), a hedge
fund that was making its profit by trading this spread was incredibly
successful before it imploded and almost took down the financial system along
with it.
There are opportunities for arbitrage in the
market, but don't average down when the market direction is against you. You
may be right eventually but your position may go bust before the market reverts
back to its normalcy.
On the run Treasuries and off the run Treasuries
4 Jul, 2022
Category: Bond
Tags: Bond
A spread that breaks the financial system in the year 1998