MACROECONOMIC DETERMINANTS OF BOND MARKET DEVELOPMENT: EVIDENCE FROM NIGERIA, 1981 - 2020

Abstract

This paper aims to investigate the macroeconomic determinants of bond market development in Nigeria between 1981 to 2020. The paper specifically aims to investigate the impact of interest rate, inflation rate, and exchange rate on bond market development. This study uses the time series data of the macroeconomic variables including interest rate, inflation rate, gross domestic product, exchange rate, and bond market capitalization. The statistical tests employed include regression analysis, correlation coefficient as well as descriptive statistics., Thus, the following findings are made: The result reveals the overall positive and significant impact of macroeconomic variable on bond market development; The result also reveals that exchange rate has positive and significant relationship with bond market development; However, interest rate, and inflation rate have impact with bond market development, but the relationship is insignificant. Against the background of the above objectives and findings the following recommendations are thus made: Based on the finding that that exchange rate has positive and significant relationship with bond market development, the government should ensure that the exchange rate is well managed and made strong in order to make bond market very attractive to investors to invest in. Also, based on the finding that gross domestic product has positive impact on bond market development, the government should focus on developing the economy as this is bound to attract investors into the bond market. Similarly, inflation, interest rate and openness have impact on bond market development. Inflation and interest rate impact greatly on bond market development. If interest rate rises, the price of bond falls. So, government must manage the interest rates well in order to ensure that the bond market remains attractive.