On the run (finance)
Encyclopedia
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.
For credit default swap
s, the 5-year contract sold at the most recent IMM date is the on-the-run security; it thus has a remaining maturity of between 4 years, 9 months and 5 years.
A number of indices only hold on-the-run contracts, to ease trading.
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 noted as having been practised by Long-Term Capital Management
.
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, 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
US Treasuries 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 swap
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
s, the 5-year contract sold at the most recent IMM date is the on-the-run security; it thus has a 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 rollingRolling (finance)
Rolling a contract is an investment concept meaning trading out of a standard contract and then buying the contract with next longest maturity, so as to maintain a position with constant maturity.-Motivation:...
the contract.
A convergence trade
Convergence trade
Convergence trade is a trading strategy consisting of two positions: buying one asset forward—i.e., for delivery in future —and selling a similar asset forward for a higher price, in the expectation that by the time the assets must be delivered, the prices will have become closer to equal , and...
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 noted as having been practised by Long-Term Capital Management
Long-Term Capital Management
Long-Term Capital Management L.P. was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute-return trading strategies combined with high leverage...
.