Liquidity Fades as Treasuries Age
Greater than $30 trillion U.S. Treasury debt is excellent. Lower than 4 p.c of this quantity, which is related to essentially the most lately issued Treasuries, referred to as on-the-run securities, accounts for 65 p.c of common each day buying and selling quantity. The remaining portion of the quantity excellent is accounted for by seasoned points which have been changed by newer benchmarks, that are known as off-the-run securities. On this put up, we evaluate the important thing ends in our paper that makes use of transaction-level Treasury TRACE information to check how buying and selling exercise and liquidity evolve as securities transfer from on-the-run to off-the-run. We present three principal patterns. First, off-the-run notes and bonds rely rather more on dealer-to-customer intermediation than benchmark securities. Second, buying and selling exercise falls sharply and transaction prices enhance as securities age. Third, securities which can be most cost-effective to ship into Treasury futures are an necessary exception: they commerce extra actively than different off-the-run bonds of comparable age.
Off-the-Run Buying and selling Takes Place in a Completely different A part of the Market
We depend on Treasury TRACE transactions information to trace how buying and selling exercise and liquidity change as particular person securities season. Such information have been collected since July 2017 and are analyzed in previous Liberty Road Economics posts inspecting the market’s construction, the marketplace for securities which have been introduced for public sale however not but issued, and the focus of buying and selling quantity on the final day of every month. In what follows, we primarily give attention to 2-year nominal coupon securities, however the outcomes typically carry over to different sectors, together with the 5-, 10-, and 30-year nominal coupon securities which can be coated within the paper. One limitation is that the info offers us with executed trades, however not quotes or different pre-trade data, and so a few of our liquidity measures are biased towards securities that commerce sufficiently to permit us to calculate such measures.
The Treasury money market is cut up between dealer-to-customer buying and selling and interdealer buying and selling. On-the-run securities dominate the interdealer phase, particularly on digital platforms. Off-the-run securities, against this, rely rather more on dealer-to-customer exercise. From January by means of June 2024, on-the-run notes and bonds averaged about $262.9 billion per day in different buying and selling system (ATS) and interdealer buying and selling, versus $174.8 billion in dealer-to-customer buying and selling (see desk beneath). Off-the-run notes and bonds appeared very totally different: solely $51.3 billion per day traded in ATS and interdealer venues, in contrast with $103.3 billion in dealer-to-customer markets. In different phrases, when a Treasury goes off-the-run, its buying and selling exercise shifts towards a unique buying and selling venue, along with turning into much less energetic than its benchmark model.
On-the-Run Buying and selling Is Concentrated within the Interdealer Market, Whereas Off-the-Run Notes and Bonds Rely Extra on Seller-to-Buyer Exercise
| On-the-Run | Off-the-Run | ||||
| Safety Sort | ATS and Interdealer | Seller to Costumer | ATS and Interdealer | Seller to Buyer | Whole |
| Notes and bonds | 262.9 | 174.8 | 51.3 | 103.3 | 592.3 |
| Payments | 25.6 | 39.1 | 33.4 | 76.2 | 174.3 |
| TIPS | 2.8 | 5.9 | 1.3 | 6.2 | 16.2 |
| FRNs | 0.2 | 0.5 | 0.3 | 1.6 | 2.6 |
| Whole | 291.5 | 220.2 | 86.2 | 187.4 | 785.3 |
Notes: This desk stories common each day buying and selling quantity of U.S. Treasury securities in billions of {dollars} between January 1, 2024, and June 30, 2024. Trades of when-issued securities and STRIPs are excluded. Whereas depository establishments began reporting trades to TRACE in September 2022, we exclude trades by which a depository establishment is a reporter (however embrace trades by which a depository establishment is a counterparty and rely these as buyer trades) in order to have a constant dataset for later analyses that use information beginning in July 2017. ATS is different buying and selling system, TIPS are Treasury Inflation Protected Securities, and FRNs are floating fee notes.
One purpose for this alteration is that off-the-run securities are more durable to match instantly. Chaboud et al. (2025) discover that solely 18 p.c of buyer buying and selling exercise in off-the-run securities had offsetting exercise in the identical safety inside the identical fifteen-minute interval. This suggests that it’s tough to pair patrons and sellers with no vendor taking stock, which helps clarify why off-the-run buying and selling depends extra closely on vendor intermediation.
Buying and selling Quantity Declines As soon as a Safety Goes Off-the-Run
The information present that buying and selling quantity declines considerably as soon as a safety strikes off the run. Within the 2-year sector, the on-the-run notice averages $56.3 billion in each day quantity, whereas the primary off-the-run (the second latest subject) averages $5.5 billion and the second off-the-run (the third latest subject) averages $1.6 billion (see charts beneath). The identical sample seems in different maturities.
Buying and selling Quantity Falls Sharply as Securities Transfer Off-the-Run
Common each day quantity ($bn)
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Notes: The chart stories the common each day buying and selling quantity in billions of {dollars} from July 2017 to June 2024, for the 2-year sector. The two-year sector contains the on-the-run (OTR), 2-year notice and off-the-run (OFR) notes and bonds with 1 to 2 years remaining to maturity. For the additional OFR buckets, which comprise a number of securities, we first calculate common each day quantity on the safety degree after which calculate the common throughout securities.
The decline in buying and selling frequency is equally massive. The on-the-run, 5-year notice averages about 37,900 trades per day, in contrast with 465 for the primary off-the-run. Within the 10-year sector, the on-the-run averages about 37,523 trades per day, in contrast with 661 for the primary off-the-run. These variations counsel that the transition to off-the-run standing is related to a significant change in how these securities commerce.
Commerce Frequency Drops as Securities Transfer Off-the-Run
Common each day variety of trades
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Notes: The chart stories the common each day variety of trades from July 2017 to June 2024, for the 2-year sector. The two-year sector contains the on-the-run (OTR), 2-year notice and off-the-run (OFR) notes and bonds with 1 to 2 years remaining to maturity. For the additional OFR buckets, which comprise a number of securities, we first calculate common each day variety of trades on the safety degree after which calculate the common throughout securities.
Modifications within the common commerce dimension are additionally in keeping with buying and selling shifting away from high-frequency interdealer platforms and towards dealer-to-customer channels, the place bigger transactions are extra frequent. Specifically, within the 5-year sector, common commerce dimension rises from about $3 million for the on-the-run to $16 million for the primary off-the-run. Within the 10-year sector, it rises from about $2 million to $10 million, and within the 2-year sector from about $4 million to $11 million.
Common Commerce Measurement Initially Rises as Securities Transfer Off-the-Run
Common commerce dimension ($mn)
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Notes: The chart stories the common commerce dimension in hundreds of thousands of {dollars} from July 2017 to June 2024, for the 2-year sector. The two-year sector contains the on-the-run (OTR), 2-year notice and off-the-run (OFR) notes and bonds with 1 to 2 years remaining to maturity.
The outcomes additionally present that exercise within the off-the-run phase just isn’t uniform. Off-the-run securities account for about 30 p.c of general coupon buying and selling quantity, with the primary and second off-the-runs making up about 15 p.c of all coupon exercise and deeper off-the-runs accounting for the remaining 15 p.c. So, the primary few off-the-runs are nonetheless an necessary a part of the market, however they nonetheless commerce very otherwise from the securities that changed them as benchmark securities.
Decrease Buying and selling Exercise Is Matched by Wider Efficient Bid-Ask Spreads as Securities Age
We measure buying and selling prices by calculating efficient bid-ask spreads because the distinction between the common worth of buyer purchase trades and the common worth of buyer promote trades divided by the midpoint between the common buyer purchase and promote costs. Decrease efficient spreads point out greater liquidity. We discover a clear sample throughout maturities: on-the-run securities are essentially the most liquid, first off-the-runs are much less liquid, and deeper off-the-runs are much less liquid nonetheless. Within the 2-year sector, the common efficient unfold rises from 0.66 foundation factors for the on-the-run to 1.22 foundation factors for the primary off-the-run and a couple of.23 foundation factors for the second off-the-run. This sample is usually comparable for the opposite sectors. In a number of sectors, the transfer from on-the-run to first off-the-run roughly doubles the efficient bid-ask unfold. Thus, these modifications are economically significant. Diminished liquidity of a safety after dropping its benchmark standing mirrors the decline in its traded amount.
The liquidity sample turns into much more pronounced in harassed situations. In March 2020, for instance, the common efficient unfold for the 2-year on-the-run rose from 0.66 foundation factors within the full pattern to 1.38 foundation factors. The primary off-the-run rose from 1.22 to 4.23 foundation factors, and the second off-the-run from 2.23 to 7.45 foundation factors. These widenings counsel that the market’s capability to soak up promoting strain weakens extra for seasoned securities at instances of stress.
There may be one necessary caveat when deciphering the outcomes for very deep off-the-runs. As a result of the efficient unfold measure relies on executed trades, it could understate illiquidity when securities merely don’t commerce fairly often. Some deep off-the-run securities present considerably narrower efficient spreads in March 2020 than within the full pattern, however that seemingly displays the bounds of utilizing transaction-based measures when exercise turns into extraordinarily sparse. Rare buying and selling is itself usually an indication of poor liquidity.
Most cost-effective-to-Ship Securities Are an Vital Exception
Some off-the-run securities change into the most affordable to ship into Treasury futures contracts. These bonds matter for hedging, futures supply, and foundation buying and selling, so they need to entice extra buying and selling curiosity than in any other case comparable off-the-run securities. By regressing each day buying and selling quantity on the CUSIP-day degree on every bond’s on-the-run/off-the-run standing and on a dummy variable that identifies whether or not a bond is the cheapest-to-deliver (CTD) for the related Treasury futures contract, we present that being the most affordable to ship is related to about $1.31 billion in extra each day buying and selling quantity within the 5-year sector. Within the 10-year sector, the CTD impact is about a further $0.75 billion in buying and selling quantity, and within the 2-year sector it’s about $0.51 billion. The 5-year impact is particularly broad-based, displaying up throughout dealer-to-customer, interdealer, and interdealer dealer (IDB) exercise.
This exception issues as a result of it reveals that off-the-run securities don’t change into much less liquid solely as a result of they’re older. They change into much less liquid as a result of the makes use of buyers have for them change, the buying and selling venue they depend on modifications, and/or the diploma of pure two-way buying and selling circulate modifications.
Summing Up
Market situations change notably when Treasury securities go off-the-run. Buying and selling shifts away from the interdealer market phase and towards dealer-to-customer intermediation. Volumes and commerce frequency fall sharply, whereas efficient bid-ask spreads widen. These patterns seem as quickly as a bond loses benchmark standing and change into extra pronounced because the bond seasons additional. On the identical time, the outcomes for the way cheapest-to-deliver standing impacts buying and selling exercise present that this course of just isn’t inevitable: when a seasoned bond stays central to hedging and futures supply, it could retain a lot stronger buying and selling exercise than its age alone would predict.
Alain Chaboud is a former principal economist on the Federal Reserve Board of Governors.
Ellen Correia Golay is a capital markets buying and selling advisor within the Federal Reserve Financial institution of New York’s Markets Group.
Michael J. Fleming is head of Capital Markets within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Yesol Huh is a former principal economist on the Federal Reserve Board of Governors.
Frank Keane is a former coverage and market-monitoring advisor within the Federal Reserve Financial institution of New York’s Markets Group.
Or Shachar is a monetary analysis advisor within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
The best way to cite this put up:
Alain Chaboud, Ellen Correia Golay, Michael J. Fleming, Yesol Huh, Frank M. Keane, and Or Shachar, “Liquidity Fades as Treasuries Age,” Federal Reserve Financial institution of New York Liberty Road Economics, June 30, 2026, https://doi.org/10.59576/lse.20260630
BibTeX: View |
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@article{AlainChaboud,EllenCorreiaGolay,MichaelJ.Fleming,YesolHuh,FrankM.Keane,andOrShachar2026,
creator={Alain Chaboud, Ellen Correia Golay, Michael J. Fleming, Yesol Huh, Frank M. Keane, and Or Shachar},
title={Liquidity Fades as Treasuries Age},
journal={Liberty Road Economics},
notice={Liberty Road Economics Weblog},
quantity={June 30},
12 months={2026},
url={https://doi.org/10.59576/lse.20260630}
}
Unlocking the Treasury Market by means of TRACE
Treasury Market When‑Issued Buying and selling Exercise
Finish‑of‑Month Exercise Throughout the Treasury Market
Disclaimer
The views expressed on this put up are these of the creator(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the duty of the creator(s).
