On-the-Run Treasury Explained: 2025 Guide for Australian Investors

In the ever-evolving world of fixed income, ‘on-the-run’ Treasury securities have become a buzzword among investors seeking both stability and liquidity. But what exactly are ‘on-the-run’ Treasuries, and why should Australian investors in 2025 care about them? With global bond markets shifting and Australia’s financial sector more interconnected than ever, understanding this concept can give you a strategic edge.

What Are On-the-Run Treasury Securities?

‘On-the-run’ Treasuries refer to the most recently issued government bonds or notes of a particular maturity. For example, if the Australian Office of Financial Management (AOFM) issues a new 10-year bond, that bond is considered ‘on-the-run’ until the next 10-year bond is issued. Older issues of the same maturity become ‘off-the-run.’

• Liquidity: On-the-run bonds are typically the most liquid in the market, meaning they are easier to buy and sell at tight bid-ask spreads.
• Benchmark Status: They often serve as benchmarks for pricing other debt instruments and derivatives.
• Yield Differences: On-the-run Treasuries sometimes trade at lower yields compared to their off-the-run counterparts due to higher demand and liquidity.

For Australian investors, this distinction is important not only for direct government bond investment but also when considering exchange-traded funds (ETFs) and managed funds that track sovereign debt benchmarks.

2025 Policy and Market Trends Shaping On-the-Run Treasuries

Australia’s government bond market has seen significant evolution in 2025. The AOFM has increased its issuance of Treasury Bonds and Indexed Bonds to support ongoing infrastructure and energy transition projects. Meanwhile, global trends—like the US Federal Reserve’s stance and China’s shifting bond demand—are influencing local yields and investor behaviour.

Key 2025 developments impacting on-the-run Treasuries include:

• Increased Issuance: The AOFM’s 2025 calendar includes more frequent new issues, resulting in a faster turnover of what is considered ‘on-the-run.’
• Liquidity Incentives: The Reserve Bank of Australia (RBA) continues to support liquidity in key maturities, making on-the-run bonds attractive for institutional and retail portfolios alike.
• Green and Social Bond Integration: The rise of ESG-focused government bonds means some new on-the-run issues carry sustainability credentials, adding another layer of appeal.

For example, the new 2035 green Treasury Bond issued in March 2025 quickly became the benchmark for long-term government debt, drawing strong demand from super funds and overseas investors seeking both yield and ESG alignment.

How On-the-Run Treasuries Fit Into Your Investment Strategy

Whether you’re a direct bond buyer, ETF investor, or running a diversified portfolio, understanding on-the-run Treasuries can help you make more informed decisions:

• Liquidity Management: On-the-run bonds are easier to trade in size, which is crucial for tactical asset allocation or when managing cash flows.
• Benchmarking: Many Australian fixed income ETFs and managed funds now track indices based on on-the-run securities, so knowing what’s in the benchmark matters for performance and risk comparison.
• Yield Opportunities: Occasionally, off-the-run bonds offer a yield premium for those willing to sacrifice some liquidity. In 2025, with high demand for ESG-labeled on-the-run issues, off-the-run bonds can be an overlooked source of value.

Consider this: During the volatile bond market swings of early 2025, the yield gap between on-the-run and off-the-run 10-year bonds briefly widened, presenting a window for savvy investors to lock in higher returns without significantly increasing credit risk.

Real-World Example: Navigating the 2025 Bond Market

Imagine an Australian investor seeking low-risk income in 2025. They notice that the most recent on-the-run 5-year Treasury bond is in high demand, trading at a yield of 3.2%, while an off-the-run 5-year bond issued just 6 months earlier is available at 3.35%. With minimal difference in credit quality and maturity, the investor opts for the off-the-run bond to capture the extra yield—demonstrating how understanding these dynamics can pay off.

Institutional investors, such as superannuation funds, also use on-the-run bonds for hedging and as collateral in repurchase agreements (repos), underscoring their central role in the Australian financial ecosystem.

Looking Ahead: Why On-the-Run Matters in 2025

As Australia’s fixed income market grows in sophistication, the distinction between on-the-run and off-the-run Treasuries will remain a key consideration. For retail and institutional investors alike, tracking new issues, understanding liquidity trends, and keeping an eye on policy updates can lead to smarter, more agile portfolio management.