Research Discussion Paper – RDP 2025-07 Back to the Futures: Liquidity in Australian Bond Futures amid Market-moving Events since COVID-19

The market for futures on Australian Government Securities (AGS) is one of Australia’s key markets for trading interest rate risk, and turnover in AGS futures is substantially greater than turnover in AGS themselves. We examine liquidity in the market for futures on AGS using granular ‘tick-level’ data that captures trades and changes at the top of the order book from October 2019 to June 2025. We find liquidity deteriorated at the onset of COVID-19 and around the end of the RBA's yield target. Nevertheless, the market for AGS futures functioned well in the period, with market participants always able to transact (albeit sometimes at higher transaction costs). For ‘news’ events in the period – such as monetary policy decisions and economic data releases, which are inherently uncertain – we find liquidity tended to deteriorate briefly following these events but recovered before day’s end. By contrast, for ‘flow’ events – such as pre-announced purchases and sales of AGS, including syndicated issuance – we find liquidity improved in anticipation of these events and smooth trading conditions were maintained. A better understanding of how liquidity in AGS futures changes in response to market-moving events should assist AGS market participants – including the RBA – to extract and interpret information from market data, and to design any AGS market transactions to maximise effectiveness while minimising side effects.