Liquidity of China’s Government Bond Market: Measures and Driving Forces

28 Pages Posted: 25 Jan 2021

See all articles by Gaofeng Han

Gaofeng Han

Hong Kong Monetary Authority; University of California, Santa Cruz - Department of Economics

Hui Miao

International Monetary Fund (IMF)

Yabin Wang

Hong Kong Monetary Authority

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2020

Abstract

We construct a daily liquidity index of China’s government bond market using transaction data from the national interbank market over the past twenty years. The index is a composite of popular price-based and quantity-based metrics of liquidity. The composite indexes, obtained by averaging across different metrics or by applying principal component analysis, both point to a better liquidity condition after 2010. Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial market volatility, but display less correlation to global macro financial indicators. Our findings suggest that further deepening of government bond market would support domestic financial stability and monetary operations down the road.

Keywords: Government Bond, Bond Liquidity, Principal Component Analysis, Regime Switching Model

JEL Classification: G12

Suggested Citation

Han, Gaofeng and Miao, Hui and Wang, Yabin, Liquidity of China’s Government Bond Market: Measures and Driving Forces (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3756882 or http://dx.doi.org/10.2139/ssrn.3756882

Gaofeng Han

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States

Hui Miao

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Yabin Wang (Contact Author)

Hong Kong Monetary Authority ( email )

Hong Kong

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