Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market

Although its importance, only recently the issue of liquidity in Treasury markets has received greater attention. We survey the literature about market liquidity and liquidity measures, and we put forward new measures. The aim is to provide a description of the liquidity of the Italian wholesale secondary market, which we describe thoroughly. We apply a large set of measures on a unique dataset, which gives us a complete view of the market. Even though the market provides an amount of liquidity that fits the market needs, the quality of the order book is low, and despite the presence of a large number of market makers, the degree of competition among them is not very high. Moreover, no clear and general relationship emerges between trading and order book measures. Indeed, even though trading activity is higher for on-the-run securities with respect to the off-the-run securities, there is not a sharp difference in terms of liquidity of the order book between them. In this case market regulation plays an important role. Finally, we investigate how long it takes for a new issue to become the benchmark for its segment. Our evidence shows that some modifications of the issuance policy in order to have a larger outstanding since the first auction could help securities in gaining earlier their benchmark status, especially in case of 10-year BTPs.