When-issued (WI) trading refers to transactions in a Treasury security that has been announced but not yet settled. It establishes the market's consensus yield before the auction takes place.
When a new Treasury issue is announced (typically several days before the auction), dealers begin trading it on a "when, as, and if issued" basis. The when-issued yield:
Provides a fair value benchmark against which the auction result is measured
Determines the tail: the difference between the auction stop and the WI yield
Allows investors to pre-position before the auction, locking in yields or hedging exposures
When-issued trading serves an important price discovery function:
It aggregates information from across the market about the likely clearing yield
It reduces uncertainty at the auction itself, as bidders can reference the WI market
It facilitates the distribution process, since dealers can pre-sell to customers at WI levels
The when-issued market is most active in the hours leading up to the auction. The "1:00 PM level" (just before the typical 1:00 PM ET auction cutoff) is the standard reference point for calculating the tail.
When-issued trading carries settlement risk — if the auction doesn't proceed or terms change, WI trades may be canceled. In practice, this risk is negligible for standard Treasury auctions.
Treasury Auction— The process by which the U.S. government sells new debt securities to fund operations.
Tail (Auction)— The difference between the auction high yield and the pre-auction when-issued yield, measuring whether the auction priced cheap or rich.
Primary Dealer— A financial institution authorized to trade directly with the Federal Reserve and required to participate in Treasury auctions.