Authors :
Martin Kilombe Muti; Dr. Gordon Opuodho
Volume/Issue :
Volume 8 - 2023, Issue 10 - October
Google Scholar :
https://tinyurl.com/35nnws4t
Scribd :
https://tinyurl.com/y7kcyhwc
DOI :
https://doi.org/10.5281/zenodo.10077338
Abstract :
The main objective of the study was to
determine the relationship between macroeconomic
variables and government bond yields listed on the
Nairobi Securities Exchange (NSE). The specific
objectives were to investigate the impact of the inflation
rate, economic growth rate, foreign direct investment
(FDI), and exchange rate on government bond yields
listed on the Nairobi Securities Exchange (NSE). The
study adopted a quantitative research design and utilized
secondary data on nineteen,15-year Kenyan government
bonds listed on the NSE from the 1st quarter of 2007 to
the 1st quarter of 2023, that is a sixteen-year period. The
analysis focused on yearly yield variations over the
maturity period of the bonds using data obtained from
the Central Bank of Kenya, Kenya National Bureau of
Statistics and World Bank. The Vector Error Correction
Model technique was employed to identify the long and
short run relationships between the macroeconomic
factors and government bond yields in EViews.
Diagnostic tests included the Augmented Dickey Fuller
test and Johansen Cointegration Tests; to test for
stationarity and long run relationship between variables
respectively. Lag selection was carried out and an
optimal lag of 1 was selected based on the Akaike
information criterion (AIC) and Schwarz information
criterion. VECM was found to be the most suitable
model since all the time series data of the variables was
found to be stationary upon first difference and there
was presence of at least one cointegrating equation. The
study established government bond yields were
significantly affected by Foreign Direct Investment,
Exchange Rate, and Inflation Rate on the long-term
while on the short-term the government bond yields
were only affected by the inflation rate. The study also
established a positive relationship with inflation rates
both in the long and short run. The FDI and Exchange
Rate exhibited a positive significant impact on the long
run only. Economic growth did not exhibit any long run
and short run relationships at five percent significance
level. The research proposed that it is crucial to
prioritize government bonds when developing both
monetary and fiscal policies within the nation.
Additionally, it suggested that the government should
initiate an extensive awareness campaign regarding
government bonds and their associated advantages as a
strategy to boost bond yields. The primary constraint of
the research was its focus on specific macroeconomic
variables and bonds. To address this, the study suggested
the need for additional empirical investigations into how
other macroeconomic factors, like unemployment rates
and government expenditures, impact government bond
yields.
Keywords :
Government Bond Yields, Inflation Rate, Economic Growth Rate, Exchange Rate, Foreign Direct Investment, Cointegration, Vector Error Correction Model, Stationarity.
The main objective of the study was to
determine the relationship between macroeconomic
variables and government bond yields listed on the
Nairobi Securities Exchange (NSE). The specific
objectives were to investigate the impact of the inflation
rate, economic growth rate, foreign direct investment
(FDI), and exchange rate on government bond yields
listed on the Nairobi Securities Exchange (NSE). The
study adopted a quantitative research design and utilized
secondary data on nineteen,15-year Kenyan government
bonds listed on the NSE from the 1st quarter of 2007 to
the 1st quarter of 2023, that is a sixteen-year period. The
analysis focused on yearly yield variations over the
maturity period of the bonds using data obtained from
the Central Bank of Kenya, Kenya National Bureau of
Statistics and World Bank. The Vector Error Correction
Model technique was employed to identify the long and
short run relationships between the macroeconomic
factors and government bond yields in EViews.
Diagnostic tests included the Augmented Dickey Fuller
test and Johansen Cointegration Tests; to test for
stationarity and long run relationship between variables
respectively. Lag selection was carried out and an
optimal lag of 1 was selected based on the Akaike
information criterion (AIC) and Schwarz information
criterion. VECM was found to be the most suitable
model since all the time series data of the variables was
found to be stationary upon first difference and there
was presence of at least one cointegrating equation. The
study established government bond yields were
significantly affected by Foreign Direct Investment,
Exchange Rate, and Inflation Rate on the long-term
while on the short-term the government bond yields
were only affected by the inflation rate. The study also
established a positive relationship with inflation rates
both in the long and short run. The FDI and Exchange
Rate exhibited a positive significant impact on the long
run only. Economic growth did not exhibit any long run
and short run relationships at five percent significance
level. The research proposed that it is crucial to
prioritize government bonds when developing both
monetary and fiscal policies within the nation.
Additionally, it suggested that the government should
initiate an extensive awareness campaign regarding
government bonds and their associated advantages as a
strategy to boost bond yields. The primary constraint of
the research was its focus on specific macroeconomic
variables and bonds. To address this, the study suggested
the need for additional empirical investigations into how
other macroeconomic factors, like unemployment rates
and government expenditures, impact government bond
yields.
Keywords :
Government Bond Yields, Inflation Rate, Economic Growth Rate, Exchange Rate, Foreign Direct Investment, Cointegration, Vector Error Correction Model, Stationarity.
