Investigating the Determinants of Sovereign Bond Yield Spread in Namibia
DOI:
https://doi.org/10.47941/ijecop.2740Keywords:
Spread, Growth, Debt GDP, CA, Sovereign BondAbstract
Purpose: The purpose of the study is to investigate the determinant of government bonds yield spread in Namibia, data from 2011Q1 to 2019Q4 was used from Bank of Namibia and Namibia statistic Agency.
Methodology: The study conducted 36 observations, and the descriptive statistics was used to determine the distribution of variables such as GDP growth rate, government debt, current account balance, and inflation rate. The study performed unit root tests, ARDL bound test, estimations of the long run and short run model, and diagnostic tests to test the normality and stability of the model.
Findings: The results reveals that all variables were symmetric around the mean, except for the current account balance and inflation rate which were skewed along the left tail. The Jarque-Bera test for yield spread showed a probability of 0.96, rejecting the null hypothesis. The remaining variables were also normally distributed, moderately close to mesokurtic, the results further indicates that all variables were integrated of order one, except for the current account balance. The cointegration test revealed a long-term relationship between GDP growth rate, government debts as a percentage of GDP, current account as a percentage of GDP, and inflation rate. The ARDL long run model presented a positive and statistically significant yield spread from the previous quarter, indicating a positive impact on the sovereign bond yield spread in the long run. Inflation was found to have a positive and statistically significant influence on the yield spread, this supports Tan and Yan's (2008) findings. The study concluded that GDP growth rate, current account balance, government debt, and inflation rate explain the variation in government bond yield spread.
Unique Contribution to Theory, Policy and Practice: The study recommend that Namibia should prioritize improving GDP growth and trade liberalization policies to attract investment opportunities in the local domestic market.
Downloads
References
Avramov, D., Jostova, G. & Philipov, A., 2007. 'Understanding changes in corporate credit spreads. Financial Analysts Journal. 63(2):90-105
Akram, T., & Das, A. (2015). A Keynesian Explanation of Indian Government Bond Yields. Journal of Post Keynesian Economic, 38(4), 565-87
Adejimi, A., Oyedira, O.S., & Ogunsanmi, E.B. (2010). Employing qualitatively enriched semi integration. The Built and Human Environment Review, 3(1), 49-6
Bank of Namibia Annual Report (2018). Retrieved July 18, 2019, from https://www.bon.com.na/Economic-information/Annual-Reports.aspx
Bank of Namibia Annual Report (2018). Retrieved July 18, 2019, from https://www.bon.com.na/Bank/Financial-Markets/Public-debt-management.aspx
Choong, C.K., Lau, E., Liew, V.K.-S., & Puah, C.-H. (2010). Does Debts Foster Economic Growth? The Experience of Malaysia. African Journal of Business Management, 4, 1564-1575.
Costantini, Mauro & Fragetta, Matteo & Melina, Giovanni, 2014. "Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective ,"European Economic Review, Elsevier, vol. 70(C), pages 337-349.
Dooley, D. (2007). Social Research Methods, New Delhi, Prentice-Hall Deloitte report (2019).Retrieved July 18, 2019, from https://www2.deloitte.com/na/en/pages/finance/articles/na_namibian_debt_markets_2019.html
Elton, Edwin J. and Gruber, Martin J. and Agrawal, Deepak and Mann, Christopher, Explaining the Rate Spread on Corporate Bonds (September 1999). NYU Working Paper No. FIN-99-082, Available at SSRN: https://ssrn.com/abstract=1299452
Fedderke, J.W., (2020). The South Africa – United States Sovereign bond spread and its association with macroeconomic fundamentals. ERSA Working Paper WP/8/830/, August 2020
Fabozzi, Frank J. and Vink, Dennis, Determinants of Primary Market Spreads on U.K. Residential Mortgage-Backed Securities and the Implications for Investor Reliance on Credit Ratings (June 6, 2011). The Journal of Fixed Income, Vol. 21, 2012, pp. 7-14, Available at SRN: https://ssrn.com/abstract=2156986
Keynes, J.M. (2007). The General Theory of Employment, Interest, and Money. New York: Palgrave Macmillan. Addison Wesley.
Mu, Y., Phelps, P., & Stotsky, G. (2013). Bond Markets in Africa. Working paper No. 13/12, International Monetary Fund.
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001) Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326. http://dx.doi.org/10.1002/jae.616
Tang, D.Y., & Yan, H. (2008). Market conditions, default risk and credit spreads. Discussion paper series 2: Banking and Financial Studies 2008. Frankfurt: Deutsche Bundesbank, Research Centre.
Ouattara, B. (2004). Modelling the Long Run Determinants of Private Investment in Senegal. Working Paper No: 04/05, University of Nottingham, United Kingdom.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Sindongo Valentinus Masonde
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
