Research On Trading Characters And Strategy Of Benchmark Bond In China

Benchmark bond refers to treasury bond against which the performance of other bonds can be measured. It can be listed and traded in both national Interbank and Stock Exchange( Shanghai Stock Exchange and Shenzhen Stock Exchange)in China. Two way custody can be conducted between banks and the exchange. Since first issuing at the end of 2002, issuing scale and marketing share of benchmark bond has increased rapidly. The fundamental position of benchmark bond in Chinese bond market is getting protruding.As benchmark bond has existed for only more than one year, few materials talk about it. In my paper ..overall trade state ,intra-market trade situation ,market background related to benchmark bond will be analysed in details. Trading state in both Interbank and Stock Exchange shows that benchmark bond has liquidity advantage which is more obvious in the Interbank. But benchmark bond hasn't still been the dominating bond in Chinese bond market. Analyses on the trans-market trade illustrates that benchmark bond is bought in a lower price in stock exchange and then sold at a higher price in Interbank market on the whole, but arbitrage in the opposite way also exists. Further analysis on trans-market trading price shows trans-market arbitrage mainly comes from fluctuating difference of the two markets.In regard to trade strategy of benchmark bond, risk-free arbitrage trade cann't be allowed for the limits on custody and short sell. Further research shows that non-standard arbitrage can work smoothly in today's Chinese bond market. And it is forcasted that trading mode will be developed in a multi-dimension way. The fast development of benchmark bond will establish the foundation in unison for two markets.