US Treasury debates new-for-old bond swap

Wed, May 04, 2016

Financial Times

Investors value owning these fresh issues, also known as ‘’on-the-run’’ securities, because they trade more frequently. Bolstering the size of current benchmarks, with a focus said to be on the 10-year note, could improve market liquidity.

The US Treasury would then buy older, less liquid and therefore cheaper debt across the market, which could in theory then be reissued at a lower yield. In recent months, yields on older issues have risen more than those for recently sold debt, suggesting a deterioration in liquidity.

"Dealers would be in a better position to provide liquidity to customers looking to sell off-the-runs if there was a known buyback schedule that would allow them to unload the position," said Lou Crandall, economist at Wrightson Icap.