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Trading activity in the Indian government bond market

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Abstract

We study how the Indian government bond market functions, how it has changed over time, and what factors help explain some of its features. Looking at the primary market, we describe how underwriting obligations are allocated to primary dealers via auction and identify several significant determinants of the underwriting commission cutoff rate, including the launch of the Negotiated Dealing System-Order Matching System (NDS-OM) electronic trading platform. Turning to the secondary market, we explore the importance of benchmark bonds, the launch of NDS-OM, the growth in trading activity, and the migration of activity from the over-the-counter (OTC) market to NDS-OM. We find that benchmark bonds, larger issues, and recently issued bonds tend to trade more actively, but that the launch of NDS-OM is associated with a reduced likelihood of a bond trading but greater trading volume conditional on trading. Benchmark bonds, larger issues, and recently issued bonds are associated with a greater share of NDS-OM trading volume (as opposed to OTC trading volume), suggesting that the NDS-OM platform is especially attractive for trading bonds with benchmark attributes.

Suggested Citation

  • Michael J. Fleming & Seema Saggar & Samita Sareen, 2016. "Trading activity in the Indian government bond market," Staff Reports 785, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:785
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    1. Y V Reddy, 2002. "Issues and challenges in the development of the debt market in India," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 117-126, Bank for International Settlements.
    2. Asian Development Bank (ADB), 2014. "Asia Bond Monitor - March 2014," ADB Reports RPS146338-2, Asian Development Bank (ADB), revised 26 Jun 2014.
    3. Nath, Golaka, 2013. "Liquidity Issues in Indian Sovereign Bond Market," MPRA Paper 51633, University Library of Munich, Germany.
    4. M S Mohanty, 2002. "Improving liquidity in government bond markets: what can be done?," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 49-80, Bank for International Settlements.
    5. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April.
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    Cited by:

    1. Deuskar, Prachi & Johnson, Timothy C., 2021. "Funding liquidity and market liquidity in government bonds," Journal of Banking & Finance, Elsevier, vol. 129(C).
    2. Ajit Dayanandan & Jai Chander & N. R. V. V. M. K. Rajendra Kumar, 2023. "Size and liquidity of government securities in India," Indian Economic Review, Springer, vol. 58(1), pages 71-90, June.

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    More about this item

    Keywords

    government bonds; trading activity; India;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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