science

On the run (finance)

On the run (finance) is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand On the run (finance) rather than just read about it. In short: In finance, an on-the-run security or contract is the most recently issued, and hence most liquid, of a periodically issued security. On-the-run securities are generally more liquid and trade at a premium to other securities.

Key takeaways

On the run (finance) belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect On the run (finance) to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of On the run (finance) from memory before moving on to harder problems.

Reference excerpt

In finance, an on-the-run security or contract is the most recently issued, and hence most liquid, of a periodically issued security. On-the-run securities are generally more liquid and trade at a premium to other securities. Other, older issues are referred to as off-the-run securities, and trade at a discount to on-the-run securities.

Examples United States Treasury securities have periodic auctions; the treasury of a given tenor, say 30 years, which has most recently been auctioned is the on-the-run security, while all older treasuries of that tenor are off-the-run. For credit default swaps, the 5-year contract sold at the most recent IMM date is the on-the-run security; it thus has remaining maturity of between 4 years, 9 months and 5 years. A number of indices only hold on-the-run contracts, to ease trading.

Trades When a new security is issued, becoming the new on-the-run security, buying the new contract and selling the old one is called rolling the contract. A convergence trade involves the difference in price between the on-the-run and the most recent off-the-run instrument: for long tenors, these are virtually the same instrument, and in any event, an on-the-run instrument becomes off-the-run upon the issue of a newer instrument. Thus, if the basis (difference in price) between an on-the-run and most recent off-the-run instrument becomes large, one may buy the off-the-run and sell the on-the-run in anticipation of the basis shrinking. This trade, for 30-year treasuries, is notable for having been practiced by Long-Term Capital Management.

References

External links Treasury Yield Curve Methodology

Worked examples

Example 1 — a first encounter with On the run (finance)

Start with the simplest possible case. Write down what On the run (finance) claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to On the run (finance) before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about On the run (finance) ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of On the run (finance)

In research: On the run (finance) appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses On the run (finance) in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: On the run (finance) is common in secondary-school and first-year university syllabi. It links to neighbouring topics Finance stubs, Securities (finance), so understanding it makes those chapters shorter.
In everyday life: Look for On the run (finance) outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study On the run (finance) in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what On the run (finance) means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain On the run (finance) out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is On the run (finance) in simple terms?

Why does On the run (finance) matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study On the run (finance)?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on On the run (finance).