PUBLIC DEBT AND BOND MARKET PERFORMANCE IN NIGERIA: A HISTORICAL PERSPECTIVE

Abstract

This study examined the effect of public debt on the return on traded bonds in Nigerian bond market. The study sourced time series data from Central Bank of Nigeria statistical Bulletin. Return on traded government development bond and Treasury bond were used as dependent variables while public external and domestic debt were used as independent variables. The ordinary least square was used as data analysis methods. Two multiple regression models were formulated. Model one found that 85.4 percent variation in return on government traded development bonds over the periods covered in this study and further found that external debt have negative effect on return on government traded development bond such that a unit increase reduces return on traded government development bond by 2.4 percent while domestic debt have positive and significant effect on return on traded government development bond such that a unit increase lead to 0.78 percent increase in return on traded government development debt. Model two found that 77.3percent variation in return on government traded treasury bonds over the periods covered in this study.  The model estimated further found that external debt have positive effect on return on government traded treasury bond such that a unit increase reduces return on traded government treasury bond by 0.2 percent while domestic debt have positive and significant effect on return on traded government treasury bond such that a unit increase lead to 0.58 percent increase in return on traded government treasury bond. From the findings the study conclude that public debt have significant effect on return on traded bonds in Nigeria. We recommend that further public borrowing should be tied to specified productive sectors of the economy that would affect positively on return on traded bonds. The study recommends borrowing loans by the government domestically rather than externally because it is discovered to have a positive impact on return on traded bonds.