Abstract
This study proposes a theoretical modeling approach for analyzing the impact of government finance on bond market return in Nigeria. The overall result shows that government finance affects not only the rate of return on asset issued by government but also the rate of return on private securities.
Highlights
Studies have revealed a strong correlation between government finance and the bond market; for instance, Greenwood and [3], Fama [4] and Vayanos [5] found evidence that market dealers have limited risk bearing capacity, suggesting that an increase in long term government bond can predict the volatility in the bond market
In Nigeria, the long term sustainability of government finances has been subject of immense debate, with the presence of new treasury framework proposed by the Ministry of Finance to set fiscal framework towards counter cyclical financial stance, debt sustainability and domestic resource mobilization
The study examines the relationship between government finance and return on private securities using a modeling approach to identify the different transmission channel and which tax-debt combination is used in government finance
Summary
In Nigeria, the long term sustainability of government finances has been subject of immense debate, with the presence of new treasury framework proposed by the Ministry of Finance to set fiscal framework towards counter cyclical financial stance, debt sustainability and domestic resource mobilization. As it were, the issuances of domestic government bonds and treasury bill along with government taxes remains the primary sources of finance available to the Nigerian government. The study proposes a theoretical modeling strategy for analyzing the impact of government finance on bond market return in Nigeria.
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