Arbitrage is a financial strategy that aims to profit from price discrepancies in different markets or between different financial instruments. In the context of the US Treasury market, an arbitrageur can exploit the price discrepancy between on-the-run and off-the-run T-bills.

Because on-the-run securities (the most recently issued) are more liquid, they typically trade at a premium (higher price, lower yield) compared to off-the-run securities. A fixed-income arbitrage strategy involves shorting the relatively overpriced on-the-run T-bills and taking a long position in the relatively underpriced off-the-run T-bills, capturing the yield spread as their prices converge over time.