Measuring Liquidity of Spanish Debt

54 Pages Posted: 10 Jun 2019

See all articles by María Isabel Cambón

María Isabel Cambón

Comisión Nacional de Mercado de Valores

José Luis Cano Coello

Independent

Jesús González Redondo

Comisión Nacional del Mercado de Valores (CNMV)

Date Written: 2017

Abstract

Assessing liquidity in fixed-income markets is becoming very important in the cur-rent context of extremely low interest rates which, in general terms, is encouraging the acquisition of riskier and (potentially) less liquid assets. Although there is the perception that bond market liquidity could have worsened over the last years in international markets, none of the current studies has reached a clear conclusion. In this paper, we propose a liquidity synthetic indicator (LSI) on Spanish debt, applying the methodology that Broto and Lamas (2016) used for US markets. We compute six individual liquidity indicators that represent the elements that characterise a liquid market (tightness, resilience, depth and breadth). We use price and transaction-based indicators for government and corporate debt when data is available for the period 2005-2016. Our LSI shows several episodes of significant worsening in liquidity conditions, related to the Lehman Brothers’ collapse and the European sovereign debt crisis. After a sizeable improvement of liquidity in 2013-2014, the liquidity indicator has deteriorated over the past months as a consequence of lower trading volumes. The current ultra-low interest rate environment and more capital demanding regulations could partially explain these results.

Keywords: liquidity measures, synthetic indicator, Spanish fixed-income market

JEL Classification: G01, G10, G15, C43

Suggested Citation

Cambón, María Isabel and Coello, José Luis Cano and Redondo, Jesús González, Measuring Liquidity of Spanish Debt (2017). CNMV Working Paper No. 66 (2017). Available at SSRN: https://ssrn.com/abstract=3401678 or http://dx.doi.org/10.2139/ssrn.3401678

María Isabel Cambón (Contact Author)

Comisión Nacional de Mercado de Valores ( email )

Edison 4
Madrid, 28006
Spain

José Luis Cano Coello

Independent ( email )

No Address Available
United States

Jesús González Redondo

Comisión Nacional del Mercado de Valores (CNMV) ( email )

C/ Miguel Ángel, 11
Madrid, Madrid 28010
Spain

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