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Liquidity of last resort: The role of X-bond trading in the Chinese government bond market

Author

Listed:
  • Duygun, Meryem
  • Jiang, Fuwei
  • Liu, Zhuoshi
  • Wang, Chaoyan

Abstract

Traditional negotiation trading dominates the electronic limit order book (LOB) of the X-Bond platform in the Chinese government bond market. Using a unique dataset, we conduct the first systematic study of the X-Bond’s role. We find that: (1) trades via LOB are notably more cost effective than via negotiation, with cost differences influenced by factors such as trader groups, bond types, trade sizes, and on-/off-the-run status; (2) electronic trading reduces the costs of negotiation trades through increased liquidity, an information channel, and a liquidity’s externality; and (3) due to the absence of an interdealer market, the X-Bond platform primarily serves as a liquidity source of last resort for managing inventory risk.

Suggested Citation

  • Duygun, Meryem & Jiang, Fuwei & Liu, Zhuoshi & Wang, Chaoyan, 2026. "Liquidity of last resort: The role of X-bond trading in the Chinese government bond market," Journal of Banking & Finance, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:jbfina:v:188:y:2026:i:c:s0378426626000968
    DOI: 10.1016/j.jbankfin.2026.107722
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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