Off-The-Run Treasuries: What They are, How They Work
Off-the-run treasuries refer to any Treasury security that has been issued, except for the newest issue, which are called on-the-run.
Off-the-run treasuries tend to be somewhat less liquid than on-the-run securities, although they are still actively traded on the secondary market.
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.
Much is being made of the US Treasury’s program to buy back it’s own debt but the true value of this program is being overlooked, and that “no-one wants off-the-run securities” is actually true in a liquidity event, and that is the entire purpose of Mr Bessent’s plan.
Please read, below, my post “The US Treasury Buyback Program” where Grok has helped me assemble the accepted view of the program - that it’s good in many ways (I agree) but that’s just a happy coincidence.
Yes, the program has effects bigger than just “making markets more liquid”—it actively reshapes supply, supports prices, eases dealer pressures, and cuts government financing costs, with knock-on benefits for financial stability.
All undoubtedly true but when markets go illiquid (read $37,000,000,000,000 of debt and rising inflation, for example) dealers can’t buy off-the-runs from customers as there is no buyer for the dealers to sell to, and they can’t be used as collateral in repo operations, as suddenly they’re not of sufficient quality.
Buying back as many Off-the-runs as possible helps contain contagion in Treasury market liquidity.
