Working Paper No. 15 of 2007 on Development of Bonds Market: Kenya's Experience

Abstract

Development of bonds market widens the financing options for firms and enables the government to shift its domestic debt to longer-term securities. However, development of bonds market requires that certain conditions be in place. These include a developed money market, wider participation and protection of investors, reduced information asymmetry and an efficient trading system. This would boost the market microstructure and facilitate development of the market. The level of development of Kenya’s bonds market indicates that the country is very far from developing this market. The length of treasury bonds market is shorter than that of developed bonds markets, the trading system is not harmonized with intermediaries using different pricing models, and the regulatory framework is also weak to accommodate diversification of corporate bonds. Also, growth of corporate bonds is yet to pick momentum, and the debt market is thin, with the type of securities that have negative implications on the competitiveness of the market. There are also gaps between the regulatory framework and the objectives of bonds market development. Thus, developing the bonds market requires huge investment in institutional building.