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Have Liquidity and Trading Activity in the Canadian Provincial Bond Market Deteriorated?


  • Chen Fan
  • Sermin Gungor
  • Guillaume Nolin
  • Jun Yang


In recent years, the liquidity in the secondary market for Canadian provincial bonds was a concern for many market participants. We find that a proxy for the bid-ask spread has deteriorated modestly since 2010. However, a proxy for price impact as well as measures of trade size, the number of trades and turnover have been stable or improved since 2010. This holds for bonds issued by different provinces and for bonds of different ages and sizes. Alberta bonds provide an interesting case study: After the fall in oil prices in 2014–15, the province increased its borrowing in the bond market and its credit rating was downgraded. Yet trading activity for Alberta bonds increased significantly. Overall, we interpret the evidence as a sign of resilience in the provincial bond market.

Suggested Citation

  • Chen Fan & Sermin Gungor & Guillaume Nolin & Jun Yang, 2018. "Have Liquidity and Trading Activity in the Canadian Provincial Bond Market Deteriorated?," Staff Analytical Notes 2018-30, Bank of Canada.
  • Handle: RePEc:bca:bocsan:18-30

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    References listed on IDEAS

    1. Sermin Gungor & Jun Yang, 2017. "Has Liquidity in Canadian Government Bond Markets Deteriorated?," Staff Analytical Notes 17-10, Bank of Canada.
    2. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    3. Dick-Nielsen, Jens & Feldhütter, Peter & Lando, David, 2012. "Corporate bond liquidity before and after the onset of the subprime crisis," Journal of Financial Economics, Elsevier, vol. 103(3), pages 471-492.
    4. Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, February.
    5. Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
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    Cited by:

    1. Rohan Arora & Guillaume Ouellet Leblanc & Jabir Sandhu & Jun Yang, 2019. "Using Exchange-Traded Funds to Measure Liquidity in the Canadian Corporate Bond Market," Staff Analytical Notes 2019-25, Bank of Canada.
    2. 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.
    3. Chen Fan & Sermin Gungor & Guillaume Nolin & Jun Yang, 2018. "Have Liquidity and Trading Activity in the Canadian Corporate Bond Market Deteriorated?," Staff Analytical Notes 2018-31, Bank of Canada.

    More about this item


    Financial markets;

    JEL classification:

    • 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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