De jure benchmark bonds

As the most liquid of instruments, benchmark bonds play an important role in price
discovery. Where markets fail to create them, however, can governments do so? In
Indonesia, Malaysia and Thailand, authorities have designated specific bonds as
benchmarks. We measure these bonds’ liquidity and find that they succeed as
benchmarks about 55% of the time. In contrast to the experience of large advanced
markets, our estimates suggest that choosing on-the-run issues as de jure benchmark
bonds is a poor strategy. Instead, what leads to success in emerging markets is choosing
seasoned bonds that already have a record of superior liquidity.