The Effect of Bond Maturity and Structural Factors on Government Bond Market Size in Tanzania

Abstract

This study examines the effect of bond maturity and structural factors on Government Bond Market (GBM) size in Tanzania. In particular, it tested the direct effects of structural factors on GBM size and examines whether bond maturity moderates these relationships. The study is informed by Market Microstructure Theory (MMT) and Transaction Cost Economics (TCE) theory and used annual time-series data covering the period from 1997 to 2024. It analyses the effects of structural factors namely transaction costs, market participants, and Treasury bond uptake on GBM size in Tanzania, as well as the moderating effect of bond maturity on these relationships. The data were analysed using the Generalised Method of Moments (GMM) through E-Views 13.0 computer software. The findings indicate that market participants contribute positively to the expansion of the GBM, while high transaction costs constrain market growth.The results further show that increased Treasury bond purchases raise the stock of outstanding debt but do not enhance market liquidity, highlighting the weak linkage between the number of bond issues and market expansion. In addition, the study finds that bond maturity moderates the relationship between structural factors (transaction costs, market participants, and Treasury bond uptake) and GBM size. This suggests that the GBM size respond differently across short-, medium-, and long-term horizons. To enhance GBM size, the study offers policy recommendations that include expanding long-term issuance, reducing transaction frictions, broadening the investor base, and aligning debt management practices with capital market reforms. The study contributes to the literature by establishing bond maturity as a moderating variable in sovereign bond market analysis, providing empirical evidence from an understudied African market, and proposing a triangular interaction model linking structural factors to GBM size. Keywords: Government Bond Market, Transaction cost, Market Participants, Treasury bond uptake, and Bond Maturity