A Study on Liquidity of China' s Government Bond Market

In this paper we investigated the liquidity of the government bonds traded in the Inter - bank Market of China and Stock Exchange of Shanghai. We estimate the width and depth of the two markets using serial covariance model, Amivest liquidity ratio and turnover ratio. We find that 1) there are structured differences of liquidity between the two markets;2) in all kinds of government bond repurchases, the 7 days Repo is the most liquid. It is reasonable to use 7 - day Repo rate as the benchmark rate;3) there is substitute effect between on - the - run bonds and off - the - run bonds.