Liquidity Indicators of the Primary and Secondary Local Currency Public Debt Market (Academic research)

Summary

• The primary market absorption indicator averaged 6.4 between 2002 and 2019, but dropped to an average of 5.3 between January 2020 and March 2026.p.4
• The absorption indicator experienced major lows during key stress events: 4.4 in April 2020, between 4.3 and 4.5 in mid-2022, and 4.3 in December 2025.p.5
• Local regression robust testing across 2 to 7 price levels yields high average correlations above 0.97, while moving average levels range slightly from 6.3 down to 6.0.p.5
• The indicator shows a contemporaneous negative correlation of -0.47 with intermediation capacity utilization, -0.49 with the Bid-Ask Spread, and -0.48 with yield volatility.p.8

Key insights

1. Primary market liquidity retrofeed directly influences secondary market conditions, causing shared deterioration during market stress episodes.p.1
2. The new absorption indicator measures the percentage increase in auction demand relative to a 1% price decrease in placed securities.p.2
3. Since 2020, sovereign debt primary market absorption capacity has remained significantly lower than the levels observed during the previous two decades.p.4
4. UVR-denominated sovereign bonds display lower demand elasticity and higher marginal placement costs compared to COP-denominated securities.p.5
5. Demand elasticity decreases across bond maturities, indicating that absorbing extra volume is more costly for long-term debt.p.6
6. Short-term treasury bonds (TCO) saw a renewed decrease in demand elasticity in late 2025 alongside historically high outstanding amounts.p.6
7. Statistically significant negative correlations between auction elasticity and secondary market bid-ask spreads persist up to 12-month lags.p.8