The Long-Run Impact of Bond Market on the Growth of the Capital Market in Nigeria

It is therefore apposite that every government which seeks independence in fiscal financing must initiate concerted efforts aimed at developing the bond market with the consequence of supporting capital market growth 2021). Bond market will also enable corporate firms to raise long term capital which will in turn generate employment and promote growth in output. The bond market in Nigeria has undergone a series of challenges over the years, with accompanying policy efforts by the Nigerian government towards its sustainability. Despite being only a subset of the capital market, bonds have continued to witness relative growth irrespective of the global economic meltdown and the subsequent Nigerian stock market crash of 2009. Abstract: The capital market as a market for long term funds is considered a catalyst for economic growth, particularly in a developing economy like Nigeria, and bond market is an essential component of the capital market. This study examined the long-run impact of bond market on the growth of the capital market in Nigeria, covering the thirty nine years period from 1981 to 2019. It utilised empirical method to analyse the secondary and time series data obtained for the study from the Central Bank of Nigeria Statistical Bulletin, and employed the Auto Regressive Distributed Lag (ARDL) bound test and co-integration analysis to examine the relationship between the variables. The study found out that bond market has a positive influence on the growth of the capital market in Nigeria, especially in the long run; and recommended that there is a need for the introduction and availability of more investment instruments like derivates, to boost volume of transactions on the capital market, and secondly, that both the states and federal governments should continue to float more bonds as debt instruments, not only to access funds, but to further deepen the capital market. interest rates fall. However, in the long-run dynamics, lending rate and savings rate significantly contributed negatively to bond value. Deposit and treasury bills rates were shown to have a positive and significant impact on bond value share of capital market in the long-run. Deposits are commercial banks liquid liabilities while treasury bills are liquid assets because of their short-term trading activities. So it is pragmatic that deposits and short term treasury bills impact positively on bond market because investors can easily withdraw their deposit at the shortest notice. Other reliability and OLS functionality tests show a good and appropriate result. The bound test indicate that a long term relationship equilibrium exist among the variables. The heteroskedasticity and serial auto correlation tests indicate that there is no presence of the associated problems in OLS. This entire test further strengthens the reliability of the results and its validity. lower the focus on bond transactions via its contribution to capital market. The financial deepening (FDM) is very significant in the long-run and not significant in the short-run, while the relationship of monetary inclusion in the economy is very effective in the long-run rather than the short-run.