Less than 4 percent of the $30 trillion U.S. Treasury market accounts for 65 percent of daily trading, according to a new study published June 30, 2026, by researchers at the Federal Reserve Bank of New York and the Federal Reserve Board. The study, which analyzed transaction-level data from July 2017 through June 2024, shows that trading activity and liquidity drop sharply once Treasury securities lose their status as the newest "on-the-run" benchmark and become older "off-the-run" issues. The findings reveal a stark two-tier market where the newest securities dominate electronic trading platforms while seasoned bonds depend heavily on dealer intermediation and trade far less frequently at wider spreads.
The data breakdown shows the scale of the divide between benchmark and seasoned securities. From January through June 2024, on-the-run notes and bonds averaged $262.9 billion per day in alternative trading system and interdealer trading, compared with just $51.3 billion for off-the-run securities. In the 2-year sector, the on-the-run note averaged $56.3 billion in daily volume, while the first off-the-run averaged just $5.5 billion and the second off-the-run fell to $1.6 billion. Trade frequency collapsed similarly: the on-the-run 5-year note averaged 37,900 trades per day versus 465 for the first off-the-run, while in the 10-year sector the on-the-run averaged 37,523 trades daily compared with 661 for the first off-the-run. Average trade sizes also shifted dramatically, rising from about $3 million for the on-the-run 5-year to $16 million for the first off-the-run, reflecting the move away from high-frequency platforms toward dealer-to-customer channels where larger transactions dominate.
Transaction costs widened substantially as bonds aged. The report finds that in the 2-year sector, average effective bid-ask spreads rose from 0.66 basis points for the on-the-run to 1.22 basis points for the first off-the-run and 2.23 basis points for the second off-the-run. In several sectors, the move from on-the-run to first off-the-run roughly doubled the effective spread. The pattern became even more severe during the March 2020 market stress, when the first off-the-run 2-year spread jumped from 1.22 to 4.23 basis points and the second off-the-run soared from 2.23 to 7.45 basis points. The authors identify one major exception: bonds that become the cheapest to deliver into Treasury futures contracts retain significantly higher trading activity, with the 5-year cheapest-to-deliver bond seeing about $1.31 billion in additional daily volume.
The collapse in liquidity happens because the entire trading ecosystem shifts when a bond loses benchmark status. The researchers explain that only 18 percent of customer trading activity in off-the-run securities had offsetting activity in the same security within the same fifteen-minute interval, making it difficult to pair buyers and sellers without a dealer taking inventory. This helps explain why off-the-run trading relies much more heavily on dealer intermediation instead of the electronic interdealer platforms that dominate on-the-run trading. The study notes that off-the-run securities "become less liquid because the uses investors have for them change, the trading venue they rely on changes, and/or the degree of natural two-way trading flow changes." The widening spreads during stress periods suggest the market's capacity to absorb selling pressure weakens more for seasoned securities precisely when investors need liquidity most.
The findings show that the transition to off-the-run status represents a fundamental change in how Treasury securities function in the market, not just a gradual aging process. The fact that cheapest-to-deliver bonds retain strong trading activity proves the liquidity fade isn't inevitable—it's driven by how investors use the securities. The authors conclude that "when a seasoned bond remains central to hedging and futures delivery, it can retain much stronger trading activity than its age alone would predict." For the vast majority of the $30 trillion Treasury market sitting in off-the-run status, the message is clear: losing benchmark status means losing liquidity, higher trading costs, and sharply reduced access to the deep, fast-moving markets that define on-the-run securities.