The Interconnection Between Government Economic Policies and Capital Markets Influences on Fixed Income Markets in Kenya

Table of Contents

1.0 Introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Purpose of the Study

1.4 Research Questions

1.5 Significance of the Study

1.5.1 Investors

1.5.2 Policy Makers

1.5.3 Researchers and Academia

1.6 Scope of the Study

1.7 Definition of Terms

1.7.1 Fixed Income Securities

1.7.2 Government Economic Policy

1.7.3 Capital Markets Forces

1.7.4 Fiscal Balance

1.7.5 Bid-Ask Spread

1.8 Chapter Summary

2.0 Literature Review

2.1 Introduction

2.2 Effects of Fiscal Policy on Fixed Income Markets

2.2.1 Effects of Fiscal Policy on Fixed Income Markets in Advanced Economies

2.2.2 Effects of Fiscal Policy on Fixed Income Markets in Emerging Economies

2.2.3 Effects of Fiscal Policy on Fixed Income Markets in Kenya and Frontier Economies

2.3 Effects of Monetary Policy on Fixed Income Markets

2.3.1 Effects of Monetary Policy on Fixed Income Markets in Advanced Economies

2.3.2 Effects of Monetary Policy on Fixed Income Markets in Emerging Economies

2.3.3 Effects of Monetary Policy on Fixed Income Markets in Kenya and Frontier Economies

2.4 Effects of Capitals Markets’ Forces on Fixed Income

2.4.1 Effects of Capitals Markets’ Forces on Fixed Income in Advanced Economies

2.4.2 Effects of Capitals Markets Forces on Fixed Income in Emerging Economies

2.4.3 Effects of Capitals Markets Forces on Fixed Income in Kenya and Frontier Economies

2.5 Chapter Summary

3.0 Research Methodology

3.1 Introduction

3.2 Research Design

3.3 Population and Sampling Design

3.3.1 Population

3.3.2 Sampling Design

3.3.2.1 Sampling Frame

3.3.2.2 Sampling Technique

3.3.2.3 Sample Size

3.4 Data Collection Methods

3.5 Research Procedures

3.6 Data Analysis Methods

3.7 Chapter Summary

4.0 Results and Findings

4.1 Introduction

4.2 General Findings

4.2.1 Treasury-bill Auction Results

4.2.2 Results of Regression Analysis

4.3 Effects of Fiscal Policy on Fixed Income Markets

4.4 Effects of Monetary Policy on Fixed Income Markets

4.5 Effects of Capital Markets Forces on Fixed Income Markets

4.6 Chapter Summary

5.0 Discussion, Conclusions, and Recommendations

5.1 Introduction

5.2 Summary

5.3 Discussion

5.3.1 Effects of Fiscal Policy on Fixed Income Markets

5.3.2 Effects of Monetary Policy on Fixed Income Markets

5.3.3 Effects of Capital Markets Forces on Fixed Income Markets

5.4 Conclusions

5.4.1 Effects of Fiscal Policy on Fixed Income Markets

5.4.2 Effects of Monetary Policy on Fixed Income Markets

5.4.3 Effects of Capital Markets Forces on Fixed Income Markets

5.5 Recommendations

5.5.1 Recommendations for Improvement

5.5.1.1 Effects of Fiscal Policy on Fixed Income Markets

5.5.1.2 Effects of Monetary Policy on Fixed Income Markets

5.5.1.3 Recommendations on Effects of Capital Markets Forces on Fixed Income Markets

5.5.2 Recommendations for Further Studies

Research Objectives and Key Topics

The primary goal of this study is to analyze the influence of government economic policies (fiscal and monetary) and capital market forces on the performance of fixed income markets in Kenya. The research specifically aims to determine if these factors can accurately predict interest rate movements and spreads within the primary market for treasury instruments.

• Impact of fiscal policy on fixed income market performance
• Influence of monetary policy announcements and Central Bank Rate (CBR) on treasury bills
• Role of capital market forces, specifically the FTSE NSE Kenya Govt. Bond Index
• Interconnectedness and interaction between monetary and fiscal policy
• Predictive modeling of the bid-ask spread in fixed income markets

Excerpt from the Book

Summary of Chapters

1.0 Introduction: Introduces the research, covering background, problem statement, objectives, and significance of studying the Kenyan fixed income market.

2.0 Literature Review: Synthesizes existing research on how fiscal and monetary policies, as well as capital market forces, influence fixed income instruments in various global economies.

3.0 Research Methodology: Details the explanatory research design, data collection methods using secondary sources, and the statistical tools employed, including multiple linear regression.

4.0 Results and Findings: Presents the collected data and analysis of the regression, covariance, and correlation between economic indicators and the fixed income market.

5.0 Discussion, Conclusions, and Recommendations: Interprets the findings, summarizes the study’s conclusions regarding the dominance of monetary policy, and provides policy recommendations.

Keywords

Fixed Income Markets, Kenya, Fiscal Policy, Monetary Policy, Capital Market Forces, Central Bank Rate, Treasury Bills, Regression Analysis, Economic Growth, Bond Index, Interest Rates, Bid-Ask Spread, Market Volatility, Financial Policy, Sovereign Debt

Frequently Asked Questions

What is the core focus of this research?

The research examines the interconnection between government economic policies—specifically fiscal and monetary strategies—and capital market forces, and how these factors impact fixed income markets in Kenya.

What are the primary thematic areas covered?

The study covers the effects of fiscal policy (government spending and taxation), monetary policy (Central Bank Rate and money supply), and capital market performance indices (FTSE NSE Kenya Govt. Bond Index) on treasury instruments.

What is the central research question?

The study seeks to determine the extent to which fiscal policy, monetary policy, and capital market forces influence and can predict movements and spreads in the Kenyan fixed income market.

Which scientific methodology is utilized?

The study uses an explanatory research design with quantitative secondary data collected from the Central Bank of Kenya and the Nairobi Securities Exchange, analyzed through multiple linear regression, correlation, and covariance analysis.

What does the main body of the work address?

The main body reviews existing literature on bond markets, outlines the methodology for analyzing secondary data over a five-year period (2012-2017), and presents results on how these economic factors correlate with fixed income performance.

Which keywords characterize this work?

Key terms include Fixed Income Markets, Fiscal Policy, Monetary Policy, Capital Market Forces, Kenya, Treasury Bills, and Regression Analysis.

How does monetary policy compare to fiscal policy in its impact on Kenyan fixed income markets?

The study concludes that monetary policy, particularly through the Central Bank Rate (CBR), has a stronger, more profound effect on fixed income markets compared to fiscal policy, which showed a weaker correlation.

Does the FTSE NSE Kenya Govt. Bond Index accurately predict interest rates in the primary market?

The findings indicate that the FTSE NSE Kenya Govt. Bond Index has little to no impact on interest rates charged on Treasury bills in the primary market and is not an accurate predictor for these instruments.