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A Framework for Developing Secondary Markets for Government Securities

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  • Ms. Zsofia Arvai
  • Mr. Geoffrey M Heenan

Abstract

This paper consolidates previous work on the development of secondary markets for government securities, and focuses on the sequencing of measures necessary for their development. Six main lessons are identified: (i) a commitment to achieving and maintaining a stable macroeconomic environment, especially prudent fiscal policy, should underpin market development; (ii) a sound and transparent public debt management strategy supports secondary market activity; (iii) a deep and diverse investor base is required; (iv) poor market infrastructure leads to high transaction costs, slow order execution, and excessive operational risk, which all inhibit trading; (v) secondary market growth is facilitated by effective monetary policy implementation; and (vi) reforms should be sequenced to ensure even development of all the structures supporting the secondary market.

Suggested Citation

  • Ms. Zsofia Arvai & Mr. Geoffrey M Heenan, 2008. "A Framework for Developing Secondary Markets for Government Securities," IMF Working Papers 2008/174, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/174
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    References listed on IDEAS

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    3. Mr. George Iden & Mr. Marco Arnone, 2003. "Primary Dealers in Government Securities: Policy Issues and Selected Countries Experience," IMF Working Papers 2003/045, International Monetary Fund.
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    6. Csaba Csávás & Lóránt Varga & Csaba Balogh, 2008. "The forint interest rate swap market and the main drivers of swap spreads," MNB Occasional Papers 2008/64, Magyar Nemzeti Bank (Central Bank of Hungary).
    7. Claudio Borio, 2000. "Market liquidity and stress: selected issues and policy implications," BIS Quarterly Review, Bank for International Settlements, November.
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    10. Claessens,Stijn & Klingebiel,Daniela M. H. & Schmukler,Sergio L., 2003. "Government bonds in domestic and foreign currency: the role of macroeconomic and institutional factors," Policy Research Working Paper Series 2986, The World Bank.
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    13. International Monetary Fund, 2003. "Managing Risks in Financial Market Development: The Role of Sequencing," IMF Working Papers 2003/116, International Monetary Fund.
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    Cited by:

    1. Kamal A. El-Wassal, 2013. "The Development of Stock Markets: In Search of a Theory," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 606-624.
    2. Han, Gaofeng & Miao, Hui & Wang, Yabin, 2020. "Liquidity of China’s Government Bond Market: Measures and Driving Forces," MPRA Paper 104545, University Library of Munich, Germany.
    3. Thordur Jonasson & Mr. Michael G. Papaioannou, 2018. "A Primer on Managing Sovereign Debt-Portfolio Risks," IMF Working Papers 2018/074, International Monetary Fund.
    4. Endo, Tadashi, 2020. "The primary dealer system in lower-income economies," Emerging Markets Review, Elsevier, vol. 45(C).
    5. Endo, Tadashi, 2022. "Endogenous market development for government securities in lower-income economies," Emerging Markets Review, Elsevier, vol. 50(C).
    6. Garcia-Kilroy, Catiana & Silva, Anderson Caputo, 2011. "Reforming government debt markets in MENA," Policy Research Working Paper Series 5611, The World Bank.
    7. International Monetary Fund, 2013. "Cape Verde, Namibia, and Kingdom of Swaziland: Selected Issues Paper on the Challenges of Small Middle-Income Countries in Sub-Saharan Africa," IMF Staff Country Reports 2013/292, International Monetary Fund.

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