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Liquidity of China’s government bond market: Measures and driving forces

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  • Gaofeng Han
  • Hui Miao
  • Yabin Wang

Abstract

We construct a daily liquidity index of China’s government bond market using transaction data from the national interbank market during 2001–2020. The index is a composite of popular price-based and quantity-based metrics of liquidity. The composite indices, obtained by averaging across different metrics and by applying the principal component analysis, respectively, 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 fewer correlations with global macrofinancial indicators. Our findings suggest that the further deepening of the government bond market would support domestic financial stability and monetary operations down the road.

Suggested Citation

  • Gaofeng Han & Hui Miao & Yabin Wang, 2023. "Liquidity of China’s government bond market: Measures and driving forces," Economic and Political Studies, Taylor & Francis Journals, vol. 11(1), pages 99-122, January.
    • Handle: RePEc:taf:repsxx:v:11:y:2023:i:1:p:99-122
    DOI: 10.1080/20954816.2022.2107783
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