The Effect of Selected Macro-Economic Variables On Bond Market Development In Kenya

Abstract

This study sought to investigate the effect of selected macro economic variables on bond market development in Kenya. A causal research design was used to find out the effect of macroeconomic variables on bond market development. Secondary data was used to model the macroeconomic factors influencing development of the bond market. The
entire bond market in Kenya was covered. Data was analyzed using descriptive and regression analysis. T-test was used to interpret the significance of the relationship. The study found out that bank size, exports and fiscal policy had no effect on bond market development while exchange rate, interest rate and GDP per capita had a positive effect.
However, economic size measured as GDP at purchasing power parity had a negative effect. It can therefore be concluded that exchange rate, interest rate, GDP per capitaand GDP at purchasing power parity do affect bond market development. It is therefore recommended that more focus should be given, on the four main variables identified, by the policy makers in order to spur more growth in the bond market. A further investigation would be necessary in order to establish the effect of other macroeconomic and institutional variables not covered by this study.

Keywords: Macro-economic variables, Bond market, Purchasing Power Parity and fiscal Policy