Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Off-the-Run Treasury Yield Curve

What it is:

An off-the-run Treasury yield curve is a yield curve based on the maturities, prices, and yields of Treasury bills or notes that are not part of the most recent issue of Treasury securities.

How it works (Example):

For example, let's assume that in March, the U.S. Treasury issues 10-year bonds. Six months later, in September, it issues another batch of 10-year Treasury bonds. The March issue of Treasuries becomes off the run; the September issue is now "on the run." The yield curve is then built using only the Treasurys that are off-the-run.

Why it Matters:

A yield curve, also known as the term structure of interest rates, plots the yields of similar-quality bonds against their maturities. This provides a benchmark for bond pricing. Off-the-run curves use Treasuries that trade on the secondary market and typically carry lower valuations (and higher yields).

One of the most unique characteristics of off-the-run Treasuries is that they tend to construct a more accurate yield curve than on-the-run Treasuries do. This is because on-the-run Treasuries tend to have some price distortions caused by the fluctuating current demand for on-the-run Treasuries.