


No, do nothing. It is important to have "as-of" data for backtesting.

Answer below is when I misread the question and thought you were trying to smooth out jumps in the rolling on-the-run series. I thought I'd keep it for reference purpose:

It depends on what you're doing. If this is purely to show where the rolling on-the-run bond yields have been trading, then no, do nothing. Practitioners are well aware of these "rolls." (Make sure your computational convention is correct – WIs should be computed using the US Treasury method for forward settlement on the issue date.)

If the time series is used for relative value trading, then these data need to be processed. The most common technique is to build a spline that generates constant maturity par yields.

  • $\begingroup$ Yes this is for relative value trading. The day after cash auction, the new cash/futures hedged spread will jump since we convert price in ticks to price in decimals to calculate the spread, then back to price in ticks in 32nd for ease of charting. Do you have any recommendations on constant maturity par yield material that I can read? Thanks. $\endgroup$ – A1122 May 28 '16 at 9:11
  • $\begingroup$ I see what you're doing. For this purpose, par bonds are not the answer. You're better off creating synthetic constant maturity bonds as a weighted average of some neighboring issues (pick 2-3 bonds around a particularly tenor and calculate a weighted average). Also, it's always a good idea to NOT use on-the-run issues, since they command liquidity premium and financing advantage, which distort time-series analysis. $\endgroup$ – Helin May 28 '16 at 19:33

You need to have a process to fix the auction-day prices. Often the coupon is changed and you will have a previous price for the old coupon, which causes the jump. It happens fairly frequently; at my place we finally automated it.

  • $\begingroup$ If I understand what you are saying... when the coupon rate on the new cash is announced, the price jumps up or down to match the existing yield on the bond? $\endgroup$ – A1122 May 28 '16 at 9:04
  • $\begingroup$ The when issued and the auction security just trade in yield terms. There is no coupon yet. But since you and I are trading the note our booking and systems need to have something in the database set up. So your database people would pick a coupon close to whatever is trading now. Then the marks for the day are set in terms of that coupon. But, when the note finally goes to auction the coupon might be different as yields move. So you now have a note with a different coupon using the original pricing. You need to go back and reprice based on that coupon. $\endgroup$ – JoshK May 29 '16 at 1:59

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