Off-the-Run Treasury Yield Curve

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Paul Tracy

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Updated January 16, 2021

What is the Off-the-Run Treasury Yield Curve?

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 Does the Off-the-Run Treasury Yield Curve Work?

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 Does the Off-the-Run Treasury Yield Curve Matter?

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.

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