Determinants of Treasury Bonds Uptake in Kenya

Abstract

Treasury bonds are an important component of a country’s financial system and represent a critical component of central banks’ monetary policy. They act as a bench mark interest rate and form part of the yield curve, which conveys important information for monetary policy. Markets are said to be efficient if they quickly and correctly incorporate information into prices. Treasury bonds demand and consequent uptake or subscription play a vital role in the running of an economy such as Kenya. Despite such quintessence, little academic research has been done to establish the determinants of Treasury bonds in the Country. The study adopted a descriptive survey design. The target population was Treasury bonds issued between 2001 and 2014 whereby the study selected fixed coupon, floating interest, zero coupon and infrastructure bonds available in both CBK and the Nairobi Securities Exchange. The data was analyzed using both description statistics as summary of the data findings and inferential analysis such as multiple linear regression and Pearson product-moment correlation coefficient to establish the influence of each factor on Treasury bond uptake. An R-square value of 0.986 established depicted that this relationship was very strong and the independent variables influences 98.6% of the investors’ decision to invest in Treasury bonds offered. The study established the determinants of treasury bonds uptake were liquidity; credit rating; rate of interest; floating rate bonds; gearing ratio; infrastructure bonds; zero coupon bonds; years to maturity and fixed coupon bond. The study concluded that long years to maturity of Treasury bonds affect investments in the same issue. This follows that some investors take longer to decide on whether to invest in the bond and/or others look to financial resources for the same thus short period cut them off. The study also recommended that further studies should be done on the effect of inflations and exchange rate on the Treasury bond uptake/investment.