ONTR vs. OFFR: Understanding On-the-Run and Off-the-Run Treasuries
In the U.S. Treasury market, bonds are categorized as either "on-the-run" (ONTR) or "off-the-run" (OFFR) based on their issuance date.
* On-the-Run (ONTR): These are the most recently issued Treasury securities of a specific maturity (e.g., the most recently issued 10-year Treasury note). They are generally the most actively traded and liquid securities within their maturity sector.
* Off-the-Run (OFFR): These are Treasury securities of the same maturity that were issued prior to the current on-the-run issue.
Key Differences:
* Liquidity: ONTR bonds typically have higher liquidity due to greater trading volume and a larger pool of market participants. OFFR bonds, being older issues, often have lower liquidity.
* Yields: The yield curve typically slopes upward, meaning longer-term bonds generally offer higher yields. However, the relationship between ONTR and OFFR yields can be more complex. Sometimes, OFFR bonds may offer slightly higher yields due to their lower liquidity.
* Pricing: ONTR bonds are often used as benchmarks for pricing other Treasury securities, including OFFR bonds.
Trading Strategies:
* On-the-Run vs. Off-the-Run Spreads: Traders may attempt to profit from perceived mispricings in the yield spread between ONTR and OFFR bonds of the same maturity.
* Curve Steepening/Flattening Trades: Traders may use ONTR and OFFR bonds to position themselves for changes in the shape of the yield curve (e.g., steepening or flattening).
Disclaimer: This information is for general knowledge and educational purposes only and should not be considered financial advice.
Note: The concepts of ONTR and OFFR are relevant to other fixed-income markets beyond U.S. Treasuries, such as government bonds issued by other countries.