The extensive Market-Maker Reform, established for the local-currency unindexed Israeli Government Bonds, was completed in September 2006. The paper examines whether one of the main goals of the reform - namely, to increase the liquidity of secondary nominal government bonds - has been attained. Firstly, the paper covers the liquidity issue, defining a set of liquidity indices that refers to market activity, liquidity cost and market depth. Secondly, the paper estimates the reform's impact on each one of the liquidity indices. The results indicate that, although the reform did improve market activity, it did not, however, improve either liquidity costs or market depth. The paper suggests two possible explanations for the reform's failure to improve the liquidity level; the maximum spread within the MTS system was too high, and the market-maker activity did not support the liquidity supply. In addition, the paper lays a preliminary foundation for measuring liquidity in the Israeli bond markets.

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