From the course: Applied Fixed Income

U.S. treasury grey market

From the course: Applied Fixed Income

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U.S. treasury grey market

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- [Instructor] So as I briefly mentioned earlier, in the US Treasury market in particular, these issues are new issues trade in a grey market prior to the actual pricing date, sometimes up to a couple of weeks in advance. This is known as the when-issued or WI market, and allows investors, traders, and speculators to trade the roll to and out of the new issue. As in most normal markets, the yield curve is upward sloping. So to roll from an old note into a new one is a way that real money managers earn a bit of income called carry. Obviously, the roll market doesn't exist for those times that an issue is to be tapped. One peculiarity of the WI or roll market for coupon-bearing USTs is that the coupon of the new issue is not yet known, so the price of the issue cannot yet be derived. Traders then work off yields or basis points, and they call it pick, which means to pick up or give to be given up if the yield curve is inverted, and by selling or buying the roll. In terms of naming, if you sell the roll, you're selling the old note and buying the new when-issued note. And when you buy the roll, you're buying the old note and selling the new when-issued note.

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