The Determinants of Bond Yields: Case of the WAEMU Public Securities Market

Abstract

This paper investigates the determinants of three-year Treasury Bond yields in the WAEMU region—a maturity frequently used in sovereign debt auctions. The methodological framework combines Principal Component Analysis (PCA), used to construct a composite financial development index, with a fixed-effects panel data model incorporating macroeconomic, financial, and institutional variables. The findings indicate a significant and negative effect of the public debt-to-GDP ratio on bond yields. However, the level of financial development is not statistically significant in the model, although the typology derived from the composite index clearly distinguishes three country groups by their level of financial maturity. This segmentation highlights the need for differentiated policy approaches: structural reforms to promote financial inclusion in less mature markets, and consolidation efforts in more advanced countries. Furthermore, prudent public debt management stands out as a critical tool for containing financing costs and sustaining investor confidence.