Report

The Microstructure of China's Government Bond Market


Abstract: Although China now has one of the largest government bond markets in the world, the market has received relatively little attention and analysis. We describe the history and structure of the market and assess its functioning. We find that trading in individual bonds was historically sparse but has increased markedly in recent years. We find also that certain announcements of macroeconomic news, such as China?s producer price index (PPI) and manufacturing purchasing managers? index (PMI), have significant effects on yields, even when such yields are measured at a daily level. Despite the increased activity in the market, we are able to reject the null hypothesis of market efficiency under two different tests for four of the most actively traded bonds.

Keywords: interest rates; announcements; trading activity; market efficiency;

JEL Classification: G12; E43; G14;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2013-05-01

Number: 622

Pages: 45 pages