Investors in the country’s fixed income market continue to develop appetite for short- to medium-term bonds over long-term bonds, as concerns surrounding inflation, fiscal and debt sustainability plus exchange rate pressures have created uncertainty about yields on the market, making them cautious.
Data from the fixed income market published by the Ghana Stock Exchange show that last week the fixed income secondary market recorded trades to the tune of GH¢4.37billion in government bills, notes and bonds, reflecting a GH¢42.84million (0.99 percent) increase in volume traded over the previous week. Then the corporate bond market recorded transactions worth GH¢358.61million in volume traded.
Meanwhile, bonds with maturity from 6-years to 20-years traded volumes at GH¢1.08billion during last week from GH¢1.41billion recorded the previous week, representing a decline of 23.4 percent.
Senior market analyst with Apakan Securities Ltd., Edem Nick Kporku, in an interview with B&FT explained that the development is a sign of lack of confidence in the market, as investors are uncertain what will happen in the future regarding long-term yields.
“Because of the confidence level in the economy, most players wouldn’t want to go too long-term. So, they will be playing within the 5-year maturity downward to 1-year maturity just to manage the risk, given the uncertainties on the market,” he said.
According to Databank, the latest credit risk downgrade from Fitch Ratings and Moody’s amid the increased financing pressure has alarmed investors; thus raising the uncertainty around the Treasury’s financing options for 2022.
“It has worsened the negative sentiments around Ghana’s fiscal situation and FX risk exposures of non-resident investors,” said Senior Economist with Databank, Courage Kingsley Martey.
During the last fortnight trading session, as of February 11, 2021, secondary market activity was muted during the period as the fresh 2-Yr bond offering was in focus.
The Treasury sold GH¢1.08billion during the 2-Yr GH¢-denominated Treasury rollover issuance. The February 2024 paper cleared at a final clearing yield of 19.75 percent after the Initial Pricing Guidance (IPG) was announced at about 19.50 percent. The proceeds from this issue were meant to refinance part of GH¢1.36billion from the February 2022 paper which was to mature at the time.
Trade volumes amounted to GH¢3.75billion – down by 9 percent compared to the previous session’s volumes, with market interests remaining mainly at the front-end to the belly of the curve (2022s to 2027s).
According to Fincap Securities, the market’s activity was centred round the short- to medium-term tenures, with the 5-year tenures dominating the market for the third week running at 37 percent of market share.
Average yield over the week was higher than in the previous week’s market, underpinned by the 2-year tenures’ 100 basis point (bps) and the 20-year tenures’ 193bps rise in yield.
Sell-off Pressures
From a bullish start to 2021, the market changed course in the second half of 2021 on the back of heightened risk perception due to the elevated uncertainties about inflation expectations, fiscal and debt sustainability, and exchange rate pressures.
Consequently, the bond market witnessed increased offshore investor sell-offs in 2021 quarter-4, with non-resident holding of local currency (LCY) bonds declining by GH¢5.3bn from August 2021.
As of December 2021, data from the Central Securities Depository (CSD) indicated that non-resident investors held 17.43 percent of the outstanding debt stocks. Local investors held about 82.57 percent of the outstanding domestic debt stocks, equivalent to about GH¢150.02billion – which is a combination of both government and corporate debts.
Off-shore investors’ share of the market has seen a significant decline as compared to 38.44 percent and 30.01 percent in 2017 and 2018, respectively.
“I think the bulk part of the sell-off has happened, although there are some sell-offs still ongoing on the market. But largely, for the most part, the offshore investors have sold off. Looking at how the market is now, however, if things get worse on the macroeconomic side we could see more selling. But as it is now, largely, the market has sold-off their positions on the off-shore side,” Mr. Kporku said.
Databank highlighted in its market outlook that: “Given the ambitious revenue target and impasse around the E-levy, we envisage a high risk of fiscal overruns – which, together with the increased dependence on domestic financing in 2022, pose upside risks to yields”.
The benchmark 91-day yield is expected to increase to around 12.70 percent by quarter-1 of 2022, and close 2022 at 14.30 percent ±100bps.
