6

Secondary market developments

It is a priority for the State Treasury to actively work with the Primary Dealers to maintain and further enhance the liquidity of the Finnish government bonds.

Finnish government benchmark bonds can be traded on the following inter-dealer platforms: MTS Finland, BGC eSpeed, Eurex Bonds and ICAP BrokerTec. The State Treasury does not participate in secondary market activity, and the inter-dealer trading is based on the activity of the Primary Dealers and other market participants. In 2016, the nominal interdealer trading volume increased in comparison to the previous year.

RFGB bid-offer spreads graph Zoom

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010203040506010-year bond spreads to Germany in 2016Basis pointsSource: BloombergJanFebMarAprMayJunJulAugSepOctNovDecBelgiumFranceAustriaNetherlandsBelgiumFranceAustriaNetherlandsFinland
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The State Treasury actively follows the Primary Dealer quoting activity in the secondary markets. There are guidelines for the Primary Dealers on quoting for different maturities in the interdealer market, where the bid-offer spread of the price quotes is observed and tracked. The average bid-offer spread of all the market makers is calculated and each Primary Dealer benchmarked against the average. On a weekly basis, the State Treasury reports the analysed spread data for the benchmark bond quotes back to the individual Primary Dealer banks. The bid-offer spreads in the interdealer and customer market segments remained stable in 2016 and in line with peer sovereign countries.

Primary dealers report customer trade volumes to the State Treasury within the European Harmonised Reporting Framework (HRF). The reporting takes place on a monthly basis, and the data is consolidated and used for monitoring and analysing. The HRF data shows that in 2016 the secondary market customer trade volumes remained at a level similar to 2015. The customer turnover volume (sales and purchases) amounted to approximately EUR 7 billion per month on average, which means that around 10 per cent of the outstanding euro benchmark stock was traded every month.

Zoom Monthly secondary market volumes of Finnish government bonds graph

In January 2016, the State Treasury launched a lender-of-last-resort securities lending facility. The purpose of the facility is to enable fails mitigation and to increase confidence for market making. A potential indicator of market liquidity is the absence of requests to use this securities lending facility.

RFGB bid-offer spreads graph Zoom

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