Liquidity and Treasury Bonds in Kenya

Abstract

The objective of this study was to determine the relationship between the bond liquidity and bond yields of treasury bonds in Kenya. The study adopted descriptive, correlational and longitudinal research designs to collect measure and analyse the data for 10 years period beginning January 2009 to December 2018. Fixed Effects Model and Random-effects regression analysis were used to test the formulated null hypothesis of the study. The study found out that bond liquidity was a significant predictor of bond yields. Bond liquidity accounted for the variance in bond yields of treasury bonds in Kenya. This study contributes to the existing knowledge in academia and provides insights into the Treasury bond market. Especially on influence of bond liquidity on the yields of treasury bonds considering that there are few empirical evidence in the finance literature. The study recommends that the central bank of Kenya should engage the Nairobi Securities exchanges and design good policies that could increase trading of treasury bonds at the secondary market to deepen the Treasury bond market and promote financial inclusion. It also recommends policy shift and improvement of understanding of the available government bond products and improved customer care practices that would increase trading and trader’s subscription at Nairobi Securities Exchange. This study used bond liquidity as the independent variable and Bond Yields as the dependent variable of the study. A further research can be conducted to established whether the revere relationship of the variables hold water. The findings for this study are useful in Kenyan context. The study suggest further studies conducted in Africa to confirm or refute the finding of this study.

Keywords: Bond Liquidity, Yields, Treasury Bonds