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Customer Liquidity Provision in Canadian Bond Markets

Author

Listed:
  • Corey Garriott
  • Jesse Johal

Abstract

This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost. Classification-JEL: G, G1, G14, G2, G20, L, L1

Suggested Citation

  • Corey Garriott & Jesse Johal, 2018. "Customer Liquidity Provision in Canadian Bond Markets," Staff Analytical Notes 2018-12, Bank of Canada.
  • Handle: RePEc:bca:bocsan:18-12
    as

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    File URL: https://www.bankofcanada.ca/2018/05/staff-analytical-note-2018-12/
    File Function: Full text
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    References listed on IDEAS

    as
    1. Adrian, Tobias & Boyarchenko, Nina & Shachar, Or, 2017. "Dealer balance sheets and bond liquidity provision," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 92-109.
    2. Rohan Arora, 2018. "Redemption Runs in Canadian Corporate Bond Funds?," Staff Analytical Notes 2018-21, Bank of Canada.
    3. Daniel Hyun & Jesse Johal & Corey Garriott, 2017. "Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?," Staff Analytical Notes 17-11, Bank of Canada.
    4. Jaewon Choi & Yesol Huh, 2017. "Customer Liquidity Provision : Implications for Corporate Bond Transaction Costs," Finance and Economics Discussion Series 2017-116, Board of Governors of the Federal Reserve System (US).
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Rohan Arora & Guillaume Bédard-Pagé & Guillaume Ouellet Leblanc & Ryan Shotlander, 2019. "Bond Funds and Fixed-Income Market Liquidity: A Stress-Testing Approach," Technical Reports 115, Bank of Canada.
    2. Léanne Berger-Soucy & Corey Garriott & André Usche, 2018. "Government of Canada Fixed-Income Market Ecology," Discussion Papers 18-10, Bank of Canada.

    More about this item

    Keywords

    Financial Institutions; Financial markets; Financial system regulation and policies; Market structure and pricing; Recent economic and financial developments;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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