Work

Liquidity of last resort: The role of X-bond trading in the Chinese government bond market

Year: 2026

Type: article

Abstract: ABSTRACT Traditional negotiation trading dominates the electronic limit order book (LOB) of the X-Bond platform in the Chinese government bond market. Using a unique dataset, we conduct the first systematic study of the X-Bond’s role. We find that: (1) trades via LOB are notably more cost effective than via negotiation, with cost differences influenced by factors such as trader groups, bond types, trade sizes, and on-/off-the-run status; (2) electronic trading reduces the costs of negotiation trades through increased liquidity, an information channel, and a liquidity’s externality; and (3) due to the absence of an interdealer market, the X-Bond platform primarily serves as a liquidity source of last resort for managing inventory risk.

Source: Journal of Banking & Finance

DOI: 10.1016/j.jbankfin.2026.107722

Authors: Meryem Duygun, Fuwei Jiang, Zhuoshi Liu, Chaoyan Wang

Institutions: University of Nottingham, Xiamen University, University of Nottingham Ningbo China

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,340