- trading volumes decreased by around 50% in August from July 2022
Liquidity is increasingly becoming more challenging on the secondary market. as investors are keenly focused on short-term instruments issued on the primary market amid attractive yields and recent credit rating downgrades.
In a commentary on last month’s performance of the secondary debt market, Constant Capital, a broker-dealer, said the current trend on the market threatens liquidity.
“Demand in the front end threatens market liquidity. The secondary market struggled throughout the month as trading volumes decreased by around 50 percent from what was seen in July,” the broker-dealer said.
However, in August 2022, short tenor papers continued the trend of driving bids, with a steady rise in yields as investors sustained to push for positive real returns amid the inflationary environment.
Available data from the market indicate that from GH¢5.82billion last July 2022, the total demand for Treasury-bills increased by 23.98 percent to GH¢7.21billion in August 2022. The 91-day bill, which drew 76.69 percent of the total amount tendered this month, led to investor interest. These issuances were intended to cover GH¢4.72billion in maturing bills.
During the last month, a dual tap offering – with proceeds expected to refinance at an August 2022 maturity – was announced and subsequently cancelled, largely due to low investor participation and higher price guidance relative to secondary market trading levels.
Elevated Treasury yields, with end-of-month T-bills hitting the 30 percent mark, continued to drive demand for Treasury assets; hence posting the best month-on-month Treasuries auction performance for the year. However, yields extended the rally, with the 91-day bill surging by 234 basis points (bps) to close at 29.05 percent, while the 182-day and 364-day bills increased by 197 bps and 217 bps to settle at 30.23 percent and 30.02 percent respectively.
Generally, the yield curve maintained its flat shape with yields trending upward; especially in the front to mid, as the market remained mostly offered.
“We predict a peak in yields during the upcoming month as a result of impacts from the emergency policy rate increase to 22 percent on inflation growth,” it stated.
However, the near- to mid-term tenors had the most activity on the secondary market, with July 2025 (29.85 percent coupon) leading the pack with GH¢1.39billion face value (FV) changing hands around 36.33 percent levels (+656 bps m/m).
In addition, large clips of Feb 2023 (17.60 percent coupon) and Feb 2023 (16.5 percent coupon) traded around the 32.4 percent and 32.72 percent levels, respectively.
Constant Capital suggested that receipt of the US$750million Afreximbank facility might reduce near-term pressures on government financing needs, as this will have some consequences for issuance and yields on the market.
Additionally, a total GH¢2.59billion in coupon payments is expected to be made this month – which the broker-dealer anticipates will help improve market liquidity.
“While there are no September 2022 bond maturities to refinance, we think the Treasury will shy away from a new issue announcement; especially since a disappointing turnout at the last auction and also due to the Afreximbank inflows.”