The Treasury and when-issued markets

The Treasury market is among the largest and most liquid market in the world. Because Treasury securities are backed by the “full faith and credit” of the U.S. government, they are considered the yardstick credit-risk-free asset. This chapter describes the functioning of the Treasury market as well as some key terminology. It also focuses on the mechanics of the so-called when-issued market, largely absent from the literature, and presents some novel empirical results. Beyond its obvious relevance for fixed-income trades, the Treasury market also contains information germane to a wider set of investors about broader risk appetite and the U.S. macroeconomic outlook. Accordingly, the chapter also discusses secondary market pricing and basic theories behind the behavior of the yield curve.