On/Off-the-Run Treasury Spread

The on-the-run Treasury is the most recently auctioned note at a given maturity — the benchmark issue that carries the deepest secondary-market liquidity. The off-the-run is the issue immediately preceding it: near-identical credit and duration, but seasoned and less actively traded. Any persistent yield gap between the two isolates the market's price for saleability rather than credit or duration risk.

OTROFF is the off-the-run yield minus the on-the-run yield, in basis points. Because the off-the-run matures roughly a quarter earlier, its yield is projected onto the on-the-run maturity using the local slope of the published Treasury par-yield curve, so the reading reflects saleability rather than the shape of the curve. A widening spread means the market is paying up for the most-current issue — the flight-to-liquidity that intensifies under funding stress. OTROFF is one of the five components of the Mengerian Stress Index.