The liquidity of the Secondary Market for Debt Securities in Norway

The main purpose of this project is to examine the liquidity and activity in the secondary market for Norwegian debt securities. The second objective is to determine whether the activity and data availability is sufficient to construct indicators that can be used to monitor the state of Norwegian bond market on a regular basis. To this end we examine a detailed data set provided to us by Oslo B{\o}rs Informasjon (OBI) containing the complete record of daily trading activity in all exchange listed fixed income securities in Norway over the period 1999-2011. Due to the low trading activity in corporate securities and the fact that a large part of trading in corporate debt is conducted off market (OTC), makes it challenging to produce reliable liquidity indicators. In particular, order based liquidity measures (such as the bid ask spread), that typically are superior measures of liquidity supply, are in most cases not possible to construct due to the lack of two sided quote observation. On the other hand, due to the reporting rules of all OTC trades to the Oslo Stock Exchange, trade based measures of liquidity (such as the Amihud ILR) are more informative.