Impact of regulatory changes on government bond market liquidity

Purpose - The purpose of this study is to assess the seriousness of the impact of new regulatory factors on liquidity in government bond markets since the onset of the global financial crisis. Design/methodology/approach - Questionnaires were circulated for examining the adverse impact of regulatory changes on liquidity. New evidence was presented about the adverse impact of the process of regulatory changes on market liquidity. Findings - The paper presents new survey results on the adverse liquidity impact of regulations on market liquidity. Responses show that government issuers differ in their assessment on the severity of the impact of the various regulations. Determining this longer-term impact is quite complex because measures of liquidity may not only reflect the impact of regulatory changes, but also the responses by policymakers and market participants (to these regulatory changes), covering in particular the following: market transparency, trading practices, market infrastructure and other policies to promote liquidity, including by reducing unconventional monetary policy measures. Also, market dynamics may have become more complex due to responses by market participants. Practical implications - Debt managers need to take into account regulations with a significant adverse influence on both market liquidity and the price discovery process. As liquidity in government bond markets also has a direct impact on funding possibilities and financing costs, funding liquidity may also be affected, especially during periods with market stress. This means that the funding strategy may need to be adapted. Originality/value - The paper presents new survey results on the impact of new regulations on market liquidity. This assessment is quite complex because measures of longer-term liquidity may reflect the impact of regulatory changes and the responses by policymakers and market participants to these changes.