for Treasury Spot Rate Curve: it is said: On-the-run Treasury issues refer to the newest Treasury issues of a given maturity. Advantage: Uses only the most accurately priced issues. Disadvantage: Large maturity gaps after the 5-year note. what is this maturity gaps mean? why specifically 5-year? thanks. for on-the-run with off-the-run, one of the disadvantage is : may be distorted by the repo market. how repo market distort the yield? Thanks.
From CFA Vol 5: “The swap market has quoted rates at 2,3,4,5,6,7,8,9,10,15 and 30. In contrast, the US Treasury market has only three on the run market rates with a maturity of 2 years or greater: 2,5,10” That’s the gap and the reason swap rates are used as a benchmark. T/G
The on-the-run bond is just the most recently auctioned bond of each original maturity. That means there are a bunch of T-bills <= 1 yr, a 2-yr, a 5-yr, 10-yr, 30-yr and there’s just one of each. That’s a 20 yr gap. (This is in the US) On the run bonds are by far the most liquid bonds out there and are shorted by bond dealers to hedge their positions. That means on-the-run bonds are “specials” in the repo market meanig that if you have one you can use it to get a really low interest loan. That interest advantage is priced into the bond in the sort-of natural way you would expect (take the interest advantage and amortize until the bond goes off-the-run). You could adjust for that if you had enough good data.
Trader/God Wrote: ------------------------------------------------------- > From CFA Vol 5: > > “The swap market has quoted rates at > 2,3,4,5,6,7,8,9,10,15 and 30. In contrast, the US > Treasury market has only three on the run market > rates with a maturity of 2 years or greater: > 2,5,10” > > That’s the gap and the reason swap rates are used > as a benchmark. > > T/G What happened to 30-yr?
Ohh yes and the 30 year. Good spot JDV T/G
I thought they weren’t issuing the 30 y old one
Source wikiepdia… I guess I need to update my data base LOL Treasury bond Treasury bonds (T-Bonds, or the long bond) have the longest maturity, from ten years to thirty years. They have coupon payment every six months like T-Notes, and are commonly issued with maturity of thirty years. The secondary market is highly liquid, so the yield on the most recent T-Bond offering was commonly used as a proxy for long-term interest rates in general. This role has largely been taken over by the 10-year note, as the size and frequency of long-term bond issues declined significantly in the 1990s and early 2000s. The U.S. Federal government stopped issuing the well-known 30-year Treasury bonds (often called long-bonds) on October 31, 2001. As the U.S. government used its budget surpluses to pay down the Federal debt in the late 1990s, the 10-year Treasury note began to replace the 30-year Treasury bond as the general, most-followed metric of the U.S. bond market. However, due to demand from pension funds and large, long-term institutional investors, along with a need to diversify the Treasury’s liabilities - and also because the flatter yield curve meant that the opportunity cost of selling long-dated debt had dropped - the 30-year Treasury bond was re-introduced in February 2006 and is now issued quarterly. This will bring the U.S. in line with Japan and European governments issuing longer-dated maturities amid growing global demand from pension funds. Some countries, including France and the United Kingdom, have begun offering a 50-year bond, known as a Methuselah.