Our Short-term Financing Bonds Liquidity Metrics And A Premium Of Empirical Research

Liquidity is the vitality of financial market. In 2005, Short-Term Financing Bill (STFB) was set up in China. Since then, China's STFB market has experienced a rapid increase in trading volume, but the secondary market is still in shortage of liquidity. As an important tool for micro-financial institutions' liquidity risk management, increasing STFB market liquidity will not only reduce cost of the issuers, but also improve China's financial market system. The current research on STFB focused on the credit risk more than liquidity. So this paper tries to research STFB market liquidity and liquidity premium with systematic empirical analysis.This article first reviewed the historical development of liquidity measurement theory. In the absorption of foreign research results and China's actual market, the article chooses a series of indicators to measure liquidity of whole STFB market and individual bond. By empirical analysis, we can see that our STFB market have been expanding transaction; STFB is better than the corporate bond, but less than central bank bills, financial bonds and government bond in liquidity; liquidity of individual bond is influenced by issuer' credit rating, issue size, issuer' industry and bond term between varying degrees.This article also studies the theory of spread, and runs a regression analysis with the use of liquidity measurement indicators and credit rating, in order to describe the current market spread level of STFB' credit risk and liquidity risk. After respective analysis of issue price spread and market price spread in first trade-day, the paper finds that price spread of STFB with low credit risk is mainly liquidity risk premium, and if its credit risk is high, both credit premium and liquidity premium play a significant proportion of the spread.All in all, a profound understanding of STFB' liquidity risk can not only improve the invest institutions' ability of pricing and risk control, but also promote the overall development of the bond market, and promote the process of market-pricing of interest rates, and lay a foundation for long-term corporate bonds in China.