Research On The Liquidity Of China's Local Government Bond

Local Government Bonds are debt certificates issued by local governments to raise funds based on the principle of credit and on the premise of taking on the responsibility of paying principal and interest.Local Government Bonds are an important part of China's financial market.From the perspective of liabilities,Local Government Bonds are an important financing means for local governments to provide financial support for urban infrastructure construction.From the perspective of assets,Local Government Bonds are a sound investment product for individual investors and non-financial institutions,and a stable asset allocation tool for financial institutions,which requires higher liquidity of local government bonds.The secondary market of local government bonds in developed countries has entered a mature stage,with diversified investors,stable investment groups,frequent trading and abundant liquidity.The start and development of Chinese local government bond market relatively late,though they have been in custody more than Treasury became the first large varieties of bonds between Banks,but in the secondary market performance is poor,clinch a deal the slow speed,small volume,high transaction costs,showed the problem of insufficient liquidity from multiple dimensions,seriously affected the local government bonds in the financial market in China play the role of the allocation of resources.This paper takes the liquidity of China's Local Government Bonds as the research center.Based on the analysis framework from multiple perspectives,it takes into account the financing needs of local governments on the liability side as well as the trading needs of investors on the asset side.Firstly,the history and current situation of China's Local Government Bonds are sorted out.On this basis,the market positioning of China's Local Government Bonds is clarified.Secondly,it studies the liquidity connotation of Local Government Bonds and related economic theories.Then the paper designs the index to measure the liquidity of China's Local Government bonds from four dimensions.Then the paper studies the liquidity of us municipal bonds and summarizes the experience of improving the liquidity of us municipal bonds.Then,the influencing factors of Local Government bonds in China are summarized,and the empirical tests are carried out in order.Finally,according to the above theoretical analysis,experience and empirical test results to improve the liquidity of China's Local Government Bonds to provide countermeasures.According to the calculation results of the liquidity level of China's Local Government Bonds in this paper,the transaction frequency of China's Local Government Bonds is low,the transaction cost is high and the turnover rate is low.Therefore,the liquidity of China's Local Government Bonds is at a low level in terms of speed,width and depth.The liquidity of China's Local Government Bonds is significantly lower than that of government bonds and policy financial bonds,no matter which year they are measured and which index they use.Liquidity is poor mainly because issuance and custody balances are large but volume is small,and most bonds are not traded in the market,failing to form a trading price,and bondholders have to pay a higher spread if they want to sell.The trinity of speed,width and depth reflects the fact that Local Government Bonds are illiquid.First,the overall liquidity of China's Local Government Bonds is poor.Of the 2,092 Local Government Bonds issued in 2016 and 2017,1,492 were not traded in 2017;Second,the liquidity of Local Government Bonds in China is mainly related to the issuance scale of each bond and the fiscal transparency of the issuer,showing a significant positive relationship.Third,the liquidity of Local Government Bonds in China is not significantly correlated with other influencing factors.This paper argues that the illiquidity of Local Government Bonds in China is caused by both unsound market rules and unreasonable product design.In order to promote the liquidity of local government debt in China,this article suggested from perfecting market rules and optimization of the two aspects of product design,promote the international bond market of our country,the development of derivatives market,build system of real-time trading information disclosure,standard credit rating system,at the same time increase the scale of single notes,extend the term structure,play a better allocation of resources of local government bonds in the financial market in China.There may be defects in the theoretical framework.Due to limited availability of some data,this paper fails to include investor factors into empirical analysis,and the accuracy of the model needs to be improved.