Abstract: The study of the effect and the nexus between the nominal value of gilt-edge treasury bonds and interest rates is a fundamental one since debt has become a vital source of financing operations of a business. Consequently, the main objective of this research was to establish the effect of interest rates on value of gilt-edge Treasury bonds at Nairobi Securities Exchange (NSE). The general null hypothesis, H0 tested was that interest rates do not affect the value of gilt-edge Treasury bonds at the NSE. The specific objectives of the study were: To assess the effect of Central Bank Rate (C.B.R.) on value of gilt-edge Treasury bonds at NSE, to analyse the effect of Inter-bank rate (I.B.R.) on value of gilt-edge Treasury bonds at NSE and to establish the relationship between the Repurchase rate of interest (REPO rates) on value of gilt-edge at NSE. Quasi experimental research was undertaken with time series data of nominal value of treasury gilt-edged bonds being regressed against the three regressors (interest rates) using regression statistics. From the summary output, all the three rates affected the nominal value of treasury gilt-edged bonds (i.e. there was an overall effect of all the three rates under study on the value of gilt-edged treasury bonds) nevertheless, the CBR was more significant even though the combined effect (multiple R) was a weak positive one leading to the rejection of the null hypothesis. Further, the CBR affected the nominal value of treasury gilt-edged bonds negatively (bidirectional relationship) whereas, the IBR and the Repo rate had a unidirectional (positive relationship).
Keywords: Gilt-edge treasury bonds, CBR, IBR and Repo rates of interest.
Title: Effect of Interest Rates on Bond Value at Nairobi Securities Exchange, (A Case of State Gilt-Edged Bonds in Kenya)
Author: ISAAC LINUS OCHIENG, DR. TOBIAS OLWENY
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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