On-The-Run Treasury Yield Curve

On-The-Run Treasury Yield Curve

What is the Treasury yield curve running?

The running treasury yield curve is the US treasury yield curve derived using current treasury bills. The current Treasury yield curve plots yields of bonds of similar quality relative to their maturities. It is the main benchmark used to value fixed income securities. The running Treasury yield curve is the opposite of the over-the-money Treasury yield curve, which refers to US government bonds of a given maturity that are not part of the most recent issue. Treasury securities.

Understanding the Treasury yield curve running

The running Treasury yield curve is generally used to value fixed income securities. However, its shape is sometimes distorted to several basic points if a fleeing treasure puts itself “on special”. A Treasure goes “special” when its price is temporarily increased. This price increase is generally the result of increased demand from securities dealers who wish to use the security as a hedging vehicle. This coverage can make the running Treasury yield curves a little less precise than the out of the money Treasury yield curves.

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

  1. The first is that the return on fleeing issues is distorted because these securities can be financed at lower rates, and therefore offer a lower return than they would have without this financing advantage.
  2. The second is that outstanding treasury issues and out-of-circuit issues present different interest rate reinvestment risks.

Running Treasury yield curve shapes

The typical shape of the sloping Treasury bill yield curve is upward as the yield increases with maturity, which is called a normal yield curve. The shape of the yield curve is the result of supply and demand for investments in particular segments of the curve.

For example, if an investment fund chooses to invest only in securities with a maturity of 5 to 10 years, this would increase prices and returns in the corresponding segment. If demand from short-term investors is extremely high, the yield curve will become steeper.

A negative yield curve reflects higher interest rates for short-term maturities than for long-term maturities. An inversion of the yield curve can sometimes result from aggressive central bank policies. These policies temporarily raise short-term interest rates to slow the economy. However, this is considered a short-term anomaly and the curve is expected to return to a flat or positive structure in the short term.

A flat curve, with approximately equal short and long-term rates, is normally associated with a transition period. This is the period when interest rates move from a positive yield curve to a negative curve or vice versa.

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