The Microstructure of China's Government Bond Market

45 Pages Posted: 4 Jun 2013 Last revised: 14 Aug 2013

See all articles by Jennie Bai

Jennie Bai

Georgetown University - Department of Finance

Michael J. Fleming

Federal Reserve Bank of New York

Casidhe Horan

The Stephen M. Ross School of Business at the University of Michigan

Date Written: May 1, 2013

Abstract

Although China now has one of the largest government bond markets in the world, the market has received relatively little attention and analysis. We describe the history and structure of the market and assess its functioning. We find that trading in individual bonds was historically sparse but has increased markedly in recent years. We find also that certain announcements of macroeconomic news, such as China’s producer price index (PPI) and manufacturing purchasing managers’ index (PMI), have significant effects on yields, even when such yields are measured at a daily level. Despite the increased activity in the market, we are able to reject the null hypothesis of market efficiency under two different tests for four of the most actively traded bonds.

Keywords: trading activity, market efficiency, announcements, interest rates

JEL Classification: G12, G14, E43

Suggested Citation

Bai, Jennie and Fleming, Michael J. and Horan, Casidhe, The Microstructure of China's Government Bond Market (May 1, 2013). FRB of New York Staff Report No. 622. Available at SSRN: https://ssrn.com/abstract=2273687 or http://dx.doi.org/10.2139/ssrn.2273687

Jennie Bai (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States

HOME PAGE: http://www.jenniebai.com

Michael J. Fleming

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Casidhe Horan

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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