J-liquidity Measure: the Term Structure of the Liquidity Premium and the Decomposition of the Municipal Bond Spread

Takahiro Hattori
Additional contact information
Takahiro Hattori: Policy Research Institute, Ministry of Finance

Discussion papers from Policy Research Institute, Ministry of Finance Japan

Abstract: We interpret the yield spread between government-guaranteed bonds and government bonds as market liquidity, and use this measure to decompose the municipal bond spread into credit and liquidity premiums in the Japanese market. Our model-free approach not only provides the term structure of the liquidity premium, but also captures the impact of illiquidity events and the illiquidity condition of the fixed-income market. The liquidity factor plays an important role in the municipal bond spread, which suggests local governments have the opportunity to reduce their financing costs through enhancing market liquidity. The liquidity measure is provided publically for future applications.

Keywords: bond liquidity; liquidity risk; term structure of liquidity premium; municipal bond market (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://warp.ndl.go.jp/info:ndljp/pid/12213409/www ... ion_paper/ron290.pdf First version, 2016 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mof:wpaper:ron290

Access Statistics for this paper

More papers in Discussion papers from Policy Research Institute, Ministry of Finance Japan Contact information at EDIRC.
Bibliographic data for series maintained by Policy Research Institute ().