# Understanding On-The-Run Treasuries: Key Features and Trading Tips

## What Are On-the-Run Treasuries?

On-the-run Treasuries are the most recently issued U.S. [Treasury bonds](https://www.investopedia.com/terms/t/treasurybond.asp) or notes, making them the most actively traded due to their high liquidity. These securities typically command a premium, trading at slightly higher prices and lower yields than their off-the-run counterparts. Investors might leverage the liquidity premium of on-the-run Treasuries through various trading strategies, enabling more informed investment decisions.

On-the-run Treasuries differ from "off-the-run" Treasuries, which were issued before the most recent and are still active. Media often references on-the-run Treasuries when discussing [Treasury yields](https://www.investopedia.com/terms/t/treasury-yield.asp) and prices.

### Key Takeaways

*   On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes and are considered more liquid than their off-the-run counterparts.  
    
*   These Treasuries often trade at a premium with a lower yield due to their high liquidity and frequent trading.  
    
*   Investors utilize arbitrage strategies by exploiting the price differences between on-the-run and off-the-run Treasuries.  
    
*   As new Treasury issues are released, the current on-the-run Treasuries transition to off-the-run status.  
    
*   Despite their higher initial cost, on-the-run Treasuries appeal to those seeking liquidity, while long-term investors may find more cost-effective options in off-the-run Treasuries.  
    

## Understanding the Mechanics of On-the-Run Treasuries

The on-the-run bond or note is the most frequently traded Treasury security of its maturity. Because on-the-run issues are the most liquid, they typically trade at a slight premium and thus yield a little less than their off-the-run counterparts. Some traders successfully exploit this price differential through an [arbitrage](https://www.investopedia.com/terms/a/arbitrage.asp) strategy that involves selling, or going short, on-the-run Treasuries, and buying [off-the-run Treasuries](https://www.investopedia.com/terms/o/off-the-runtreasuries.asp).

Treasuries are considered to be a lower risk than some other investment options, as they are debts owed by the Federal Government. The Treasury issues them to raise revenue for government expenses. As Treasuries are created and sold, the newest batch becomes the on-the-run Treasuries.

## Comparing On-the-Run and Off-the-Run Treasuries

Treasuries transition from on-the-run to off-the-run when newer ones are issued. For instance, if one-year Treasury notes are issued today, they become the current on-the-run Treasuries.

If another set of Treasury notes get issued in the next month, those become the new on-the-run Treasuries, and the previously issued Treasuries are considered off-the-run. This cycle continues with each new batch. Older groups become off-the-run until cashed in at maturity.

The most actively traded Treasuries are usually those considered on-the-run. Because they trade more, on-the-run Treasuries often have higher initial costs and lower yields than off-the-run. This makes on-the-run Treasuries more liquid since buyers are easier to find than for off-the-run options. This leads to more investments relating to hedging than to longer-term investments.

Long-term investors may avoid pricey on-the-run Treasuries as returns and interest rates are usually similar. The price difference between on-the-run and off-the-run Treasuries is often referred to as the liquidity premium, as the more liquid Treasuries are obtained at a higher cost. If liquidity is not a concern, the investor will likely look for more cost-effective options.

## Pros and Cons of Investing in On-the-Run Treasuries

On-the-run Treasuries are more scarce than off-the-run Treasuries. There are plenty of off-the-run treasuries, yet, there are a limited amount of on-the-run securities—that is, new issues are a small part of the Treasury universe. Thus, on-the-run securities tend to have higher prices and lower yields.

On-the-run securities tend to be highly liquid, as they trade heavily on the secondary market. Meanwhile, the liquidity for off-the-run Treasuries is less, where they've already been bought and are held by investors. Thus, on-the-run Treasuries trade with that liquidity premium, but if investors don't need the newest issue, they will likely find a better deal with off-the-run Treasuries.

## The Bottom Line

On-the-run Treasuries are the most frequently traded and recent issues for government debt of a certain maturity, making them highly liquid but slightly more expensive. They often trade at a premium due to their liquidity, which results in a lower yield compared to off-the-run Treasuries.

Investors seeking ease of transaction and high liquidity may prefer on-the-run Treasuries despite their higher cost. Conversely, those who prioritize cost over liquidity should consider off-the-run options.