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Investigating the Determinants of Sovereign Bond Yield Spread in Namibia

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  • Sindongo Valentinus Masonde

Abstract

Purpose: The purpose of the study is to investigate the determinant of government bonds yield spread in Namibia, data from 2011Q1 to 2019Q4 was used from Bank of Namibia and Namibia statistic Agency. Methodology: The study conducted 36 observations, and the descriptive statistics was used to determine the distribution of variables such as GDP growth rate, government debt, current account balance, and inflation rate. The study performed unit root tests, ARDL bound test, estimations of the long run and short run model, and diagnostic tests to test the normality and stability of the model. Findings: The results reveals that all variables were symmetric around the mean, except for the current account balance and inflation rate which were skewed along the left tail. The Jarque-Bera test for yield spread showed a probability of 0.96, rejecting the null hypothesis. The remaining variables were also normally distributed, moderately close to mesokurtic, the results further indicates that all variables were integrated of order one, except for the current account balance. The cointegration test revealed a long-term relationship between GDP growth rate, government debts as a percentage of GDP, current account as a percentage of GDP, and inflation rate. The ARDL long run model presented a positive and statistically significant yield spread from the previous quarter, indicating a positive impact on the sovereign bond yield spread in the long run. Inflation was found to have a positive and statistically significant influence on the yield spread, this supports Tan and Yan's (2008) findings. The study concluded that GDP growth rate, current account balance, government debt, and inflation rate explain the variation in government bond yield spread. Unique Contribution to Theory, Policy and Practice: The study recommend that Namibia should prioritize improving GDP growth and trade liberalization policies to attract investment opportunities in the local domestic market.

Suggested Citation

  • Sindongo Valentinus Masonde, 2025. "Investigating the Determinants of Sovereign Bond Yield Spread in Namibia," International Journal of Economic Policy, CARI Journals Limited, vol. 5(3), pages 1-11.
    • Handle: RePEc:bhx:ijecop:v:5:y:2025:i:3:p:1-11:id:2740
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    1. Costantini, Mauro & Fragetta, Matteo & Melina, Giovanni, 2014. "Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective," European Economic Review, Elsevier, vol. 70(C), pages 337-349.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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