Analysis On Liquidity Of China's Segmented Treasury Securities Market

To finance the government's deficit, treasury securities came into being. Ever since then, treasury securities, perceived as risk-free assets, have enjoyed enomous development. Now, it is a popular investment choice among investors, it is widely held by financial institutions to keep their portfolio liquid, it is the primary instrument used by central banks in their open market operation, and its yield is the most frequently quoted benchmark in the whole financial market.However, all the above mentioned functions of treasury securities rely on one foundermental condition, that is, the treasury securities market must be highly liquid.China's marketable treasury securities have a segmented market. The over-the-counter market (the OTC market hereafter) and the securities exchange market of treasury securities differ in terms of the product listed, the market participants, the trade mechanism and the securities holding arrangement.What kind of change has liquidity of the two markets experienced, how is the current situation, how have reform measures affected the liquidity of treasury securities market, these have become issues of concern to this paper.The second chapter first discussed the definition and measures of liquidity, and then summarized factors that affect market liquidity of treasury securities. In the third chapter, this paper took a close look at both the primary market and the secondary market of the treasury securities, paying special attention to major reforms. Chapter IV calculated the the turnover ratio of the two market, and then focused on OTC market to measure its bid-ask spread. Turnover ratio showed that the liquidity of the OTC market improved steadily, while the exchange market saw a decrease in liquidity. The bid-ask spread showed the competition among maket makers could improve liquidity.