Someone, please explain this.
On-the-run bonds are the most recently issued bonds, opposite to the off-the-run bonds which are the bonds issued before the most recent ones. So, the bonds most recently issued are more traded (more trading volume), therefore carry a slight premium in its price, thus a lower YTM.
In simple terms, the hot bonds have higher prices and lower YTMs.
Hope this helps!
Somos it always the case that more traded bonds have lesser YTM? Why is that so?
Is it because the illiquidity premium becomes lesser?
Yup, liquidity risk primium should be slightly lower. Investor requier a lower premium as long as they are the most traded bonds, until a new issuance take place.
Thanks a lot for your help, man!