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A Framework for Developing Secondary Markets for Government Securities


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  • Zsófia Ãrvai
  • Geoffrey Heenan
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    This paper consolidates previous work on the development of secondary markets for government securities, and focuses on the sequencing of measures necessary for their development. Six main lessons are identified: (i) a commitment to achieving and maintaining a stable macroeconomic environment, especially prudent fiscal policy, should underpin market development; (ii) a sound and transparent public debt management strategy supports secondary market activity; (iii) a deep and diverse investor base is required; (iv) poor market infrastructure leads to high transaction costs, slow order execution, and excessive operational risk, which all inhibit trading; (v) secondary market growth is facilitated by effective monetary policy implementation; and (vi) reforms should be sequenced to ensure even development of all the structures supporting the secondary market.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/174.

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    Length: 55
    Date of creation: 01 Jul 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/174

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    Postal: International Monetary Fund, Washington, DC USA
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    Keywords: Government finance statistics; Public debt; government securities; central bank; monetary policy; securities market; government securities market; securities markets; capital markets; government securities markets; liquid asset; inflation; monetary fund; capital account liberalization; liquidity management; money market; market for government securities; stock exchange; securities settlement; capital inflows; international capital markets; government bonds; reserve requirements; treasury securities; government security; capital market; domestic government securities; monetary instruments; money markets; international capital; issuance of government securities; monetary policy implementation; treasury bonds; securities transactions; indexed bonds; securities accounts; high reserve requirements; demand for government securities; fixed rate bonds; capital market development; holdings of government securities; capital gains; current account balance; long-term government securities; corporate bonds; share of government securities; capital losses; hedge funds; investors in government securities; government securities holdings; brady bonds; capital outflow; derivative markets; government securities auctions; national bank; monetary authorities; securities settlement systems; securities trading; hedging; investor confidence; domestic securities; private capital inflows; securities auctions; capital requirement; bond placements; minimum capital requirement; bond issues; bond issuance; treasury notes; securities traders; capital controls; options markets; capital loss; monetary expansion; foreign securities; long-term interest rates; current account deficits; monetary management; capital account restrictions; speculative attacks; bond funds; liquidity of government securities; indexed securities; monetary frameworks; creditworthy borrowers; capital flows; government bond markets; security markets; new securities; current account deficit; swap transactions; spot market; debt stock; fixed rate securities; short-term government securities; monetary policy operations; domestic borrowing; indexation; management techniques; net capital; private capital; government bond market; debt securities; retail government securities; subsidiaries;

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    1. George Iden & Marco Arnone, 2003. "Primary Dealers in Government Securities," IMF Working Papers 03/45, International Monetary Fund.
    2. International Monetary Fund, 2003. "Managing Risks in Financial Market Development," IMF Working Papers 03/116, International Monetary Fund.
    3. Garry J. Schinasi & T. Todd Smith, 1998. "Fixed-Income Markets in the United States, Europe, and Japan-Some Lessons for Emerging Markets," IMF Working Papers 98/173, International Monetary Fund.
    4. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank.
    5. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(2), pages 688-726, June.
    6. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio, 2003. "Government bonds in domestic and foreign currency: the role of macroeconomic and institutional factors," Policy Research Working Paper Series 2986, The World Bank.
    7. Robert T. Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
    8. Csaba Csávás & Lóránt Varga & Csaba Balogh, 2008. "The forint interest rate swap market and the main drivers of swap spreads," MNB Occasional Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2008/64, Magyar Nemzeti Bank (the central bank of Hungary).
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    Cited by:
    1. Kamal A. El-Wassal, 2013. "The Development of Stock Markets: In Search of a Theory," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 606-624.


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