The most recently auctioned Treasury security at a given maturity; it is the most liquid issue, trades at a premium to older ones, and is what quoted benchmark yields refer to.
Every time a new 10-year is auctioned, the previous one becomes off-the-run. The new issue inherits the benchmark status, the tightest bid-ask-spread and most of the trading volume, and it is the one that goes special-repo when demand to short it is high.
That liquidity is worth something, so the on-the-run issue yields slightly less than an almost identical off-the-run bond. Relative value desks trade that gap as the on-the-run premium.
Example: the current 10-year yields 4.18% while a 10.5-year-maturity off-the-run issue yields 4.23%. The 5 basis point pickup is the price of giving up liquidity, and it typically collapses when the older bond is itself in demand.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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