Government Bond Issuance Key to Strengthening Corporate Bond Market — World Bank
By: Solomon Nartey Tetteh
World Bank report has highlighted the critical role of sovereign bond issuance in developing Ghana’s domestic corporate bond market.
The Manager at the International Finance Corporation (IFC), Cesaire Assah Meh presented the report during a seminar on the World Bank’s Financing Firm Growth and the Role of Capital Markets report.
Mr. Meh explained that in many countries, the government’s first bond issuance typically precedes and enables the emergence of a domestic corporate bond market.
“The data clearly shows that sovereign issuances come first. They create the benchmark yield curve that allows firms to price their own bonds across different maturities,” he said.
He added that establishing a clear benchmark yield curve is essential for transparent and efficient pricing of private-sector bonds.
Mr. Meh also referenced findings from a 2019 Bank for International Settlements (BIS) report, which examined how domestic government bond markets price yield premia. The study, led by a former Deputy Governor of the Reserve Bank of India, compared advanced economies with emerging markets.
The analysis showed that country-specific factors particularly uncertainty, significantly influence sovereign bond pricing in emerging markets.
“The higher the uncertainty, the more investors demand a premium on sovereign bonds. In advanced economies, this effect is far less pronounced,” he explained.
He noted that reducing uncertainty through strong macroeconomic management such as keeping inflation low and maintaining economic stability directly contributes to lower sovereign yields. This, in turn, improves pricing conditions for corporate bonds.
“This relationship means that macro stability doesn’t just help government borrowing; it has a direct impact on the private sector’s cost of capital as well,” he added.
Mr. Meh emphasised that countries seeking to deepen their capital markets must pursue a series of reforms rather than isolated policy actions.
He pointed to East Asia as an example, where major reforms following the financial crises of the 1970s and 1990s supported robust growth in capital market financing.
He also stressed the importance of institutional investors such as pension funds.
“Pension funds can play a transformative role. The question is how to encourage them to allocate more funds toward productive investments rather than holding a large share in government securities,” he said.
Mr. Meh indicated that the World Bank is preparing a new report exploring these relationships in greater detail, including how sovereign and corporate bond pricing interact in developing economies.
He called for sustained dialogue on reforms and long-term strategies to strengthen Ghana’s capital markets and support private-sector growth.
