The main objective of the study was to determine the factors that contribute to and/or hinder the development of the government bonds liquidity in the MEFMI region using Kenya and Zambia as case studies. The study applied the panel data econometric analysis and tested whether the Eichengreen and Luengnaruemitchai (2004) findings are replicated in Zambia. The study revealed that macroeconomic factors, available instruments, and structural factors do matter in the government bonds market development.

The budget balance, available instruments namely the repo market development and issuance of benchmark securities, and an open economy have a positive significant impact on bond market liquidity while the interest rate and exchange volatility, as expected, had a negative impact on bond market liquidity. In the final analysis, the Kenyan government bonds market was found to be deep and fairly active while bond trading in the Zambian market was found to be weak. In particular, benchmark bonds and horizontal (interbank) repos were found to play significant roles in building the yield curve and deepening market activity, respectively. Policies aimed at ensuring a stable macroeconomic environment, necessary structures such as infrastructure, developing instruments and institutions that promote bond market liquidity remain key.

Determinants of Secondary Market Development of Government Bonds Case Studies of Kenya and Zambia 2000-2015_Lilian Sinyangwe