On-the-run Premia, Settlement Fails, and Central Bank Access

Fabienne Schneider

Staff Working Papers from Bank of Canada

Abstract: The premium on “on-the-run” Treasuries (i.e., the most recently issued ones) is an anomaly. I explain it using a model in which primary dealers hold inventories of Treasuries. There is less variation across primary dealers’ inventories of on-the-run Treasuries compared with off-the-run Treasuries. Because there is less inventory uncertainty, on-the-run Treasuries fail to settle less frequently and trade at a premium. My theory is consistent with the USD 33 billion of Treasury contracts that fail to settle each day, with the median failure rate of off-the-run Treasuries being almost twice that of on-the-run Treasuries. I use the model to analyze the effects of granting access to central bank facilities to non-banks active in the Treasury market. Broad access stimulates trading and reduces the on-the-run premium, but settlement fails increase and, counterintuitively, only primary dealers benefit.

Keywords: Asset pricing; Financial markets; Market structure and pricing; Monetary policy (search for similar items in EconPapers)
JEL-codes: G12 G19 G23 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025-08
New Economics Papers: this item is included in nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.34989/swp-2025-19 Abstract (text/html)
https://www.bankofcanada.ca/wp-content/uploads/2025/08/swp2025-19.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:25-19

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().