What is On-The-Run Treasury Yield Curve?

The on-the-run Treasury yield curve graphically shows the current yields versus 澳洲幸运5官方开奖结果体彩网:maturities of the most recently sold 澳洲幸运5官方开奖结果体彩网:U.S. Treasury securities and is the primary benchmark used in pricing fixed-income secur𓃲ities.

Understanding On-The-Run Treasury Yield Curve

Simply put, the on-the-run treasury yield curve is the U.S. Treasury yield curve that is derived using on-the-run Treasuries and it plots the yields of these instruments, of similar quality, against their maturities. The on-the-run Treasury yield curve is the opposite of the 澳洲幸运5官方开奖结果体彩网:off-the-run Treasury yield curve, which refers to U.S. treasuries, of a given maturity, which are not part of the most recent issue. On-the-run treasury yield curve is less accurate than off-the-run treasury yield curve as the volatility of curren💖t demand for recent supply tends to lead to price distortions.

The on-the-run Treasury yield curve's relevance lies in the fact that it is commonly used to price 澳洲幸运5官方开奖结果体彩网:fixed-income securities. However, its shape is sometimes distorted by up to several 澳洲幸运5官方开奖结果体彩网:basis points if an on-the-run Treasury goes "on special." A Treasury goes "on special" when its price is temporarily bid up. This price increase is usually the result of increased demand by securities dealers wishing to us🗹e the security as a hedging vehicle. This hedging can make on-the-run Treasury yield curves somewhat less accur🙈ate than off-the-run Treasury yield curves.

The Treasury yield curve indicates that there are two important factors that complicate the relationship bet✅ween maturity and yield. 

1. The first is that the yield for on-the-run issues is distorted since these securities can be financed at cheaper rates, and therefore offer a lower yield than they would without this financing advantage. 
2. The second is that on-the-run Treasury issues and off-the-run issues have different interest rate 澳洲幸运5官方开奖结果体彩网:reinvestment risks.

Yield Curve Shapes

The typical shape for the on-the-run Treasury yield curve is upward sloping as yield increases with maturity, which is referred to as a 澳洲幸运5官方开奖结果体彩网:normal yield curve. The sh♍ape of the yield curve is the result of s🐲upply and demand for investments in particular segments of the curve. 

For example, if an investment fund chooses to invest only in securities with 5- to 10-year maturities, that would raise prices and lower yields in the corresponding segment. If dem🌠and by short-term investors is extremely high, the yield curve will become steeper.

An 澳洲幸运5官方开奖结果体彩网:inverted yield curve reflects higher interest rates for shorter-term maturities than for longer-term maturities. An inversion in the yield curve can sometimes be the result of aggressive central bank policꦿies. These policies temporarily raise short-term interest rates to slow the economy. However, this is considered to be a short-term abnormalityꦗ and there is an expectation that the curve will revert to a flat or positive structure in the near term. 

A 澳洲幸运5官方开奖结果体彩网:flat yield curve, where short- and long-term rates that are approximately equal, is normally ass🤪ociated with a transitional period. This period is when interest rates ꦜare moving from a positive yield curve to an inverted yield curve or vice versa.