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De jure Benchmark Bonds

Author

Listed:
  • Eli Remolona

    (Asia School of Business)

  • James Yetman

    (Bank for International Settlements)

Abstract

As the most liquid of instruments, benchmark bonds play an important role in price discovery. Where markets fail to create them, however, can governments do so? In Indonesia, Malaysia, and Thailand, authorities have designated specific bonds as benchmarks. We measure these bonds' liquidity and find that they succeed as benchmarks about 55 percent of the time. In contrast to the experience of large advanced markets, our estimates suggest that choosing on-the-run issues as de jure benchmark bonds is a poor strategy. Instead, what leads to success in emerging markets is choosing seasoned bonds that already have a record of superior liquidity.

Suggested Citation

  • Eli Remolona & James Yetman, 2022. "De jure Benchmark Bonds," International Journal of Central Banking, International Journal of Central Banking, vol. 18(3), pages 89-124, September.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:3:a:3
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    References listed on IDEAS

    as
    1. Darrell Duffie & Piotr Dworczak & Haoxiang Zhu, 2017. "Benchmarks in Search Markets," Journal of Finance, American Finance Association, vol. 72(5), pages 1983-2044, October.
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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