Open AccessINFLUENCE OF INFLATION ON BOND PRICES: A SURVEY OF BONDS LISTED AT THE NAIROBI SECURITIES
Author(s) -
Margaret Ngaruiya,
Amos Njuguna
Publication year - 2017
Publication title -
american journal of economics
Language(s) - English
Resource type - Journals
ISSN - 2520-0453
DOI - 10.47672/aje.137
Subject(s) - bond , inflation (cosmology) , economics , bond market , monetary policy , monetary economics , government bond , interest rate , macroeconomics , finance , physics , theoretical physics
Purpose: The purpose of this study was to establish the influence of inflation on bond price.Methodology: The research used an explanatory research design. 65 bonds listed in 23 categories at the NSE. The study used secondary data collected from NSE and the (KNBS) Kenya National Bureau of Statistics. A sample of 10 bonds was selected as these bonds were issued in the January 2008 and were still not mature by the 31st December 2012. Standard deviations were calculated for all the variables in the study. Further statistical analysis was carried out by use of correlation and regression analysis where bond prices were regressed against inflation, exchange rates and economic growth measured using the Kenya’s Gross Domestic Product growth. The Statistical Package for Social Sciences (SPSS) version 17 was used to conduct the analysis. The findings were presented in form of tables and figures.Results: The study found out that inflation had negative and significant relationship on the bond prices.Unique contribution to theory, practice and policy: This study recommends that investors who are looking to buy into bonds should factor in inflation as this determines the bond prices. Since inflation has a negative impact on bond prices, the government policy making organ mandated with the control of inflation should pursue measures to reduce the inflation rate. These measures should include monetary policies such as reduce the interest rates, open market operations geared at reducing the amount of money supply in the economy. The government may also pursue contractionary fiscal policy aimed at reducing inflation. These polices would include reducing government spending.