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Journal of Banking & Finance Vol. 188 2026

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

Meryem Duygun1; Fuwei Jiang2,3; Zhuoshi Liu4; Chaoyan Wang5

1 University of Nottingham · 2 Xiamen University · 3 Xiamen University of Technology · 4 Shanghai Harbour Engineering Design & Research Institute · 5 University of Nottingham Ningbo China

open access

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.

DOI
10.1016/j.jbankfin.2026.107722
Volume
188
Pages
107722
Language
en
Sources
openalex crossref

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