By Joshua Worlasi AMLANU
The country’s fixed-income market needs a yield curve that accurately reflects market conditions in order for government to succeed in it’s bond market re-entry, Madeline Nettey, Chief Executive Officer-Republic Investments, has said.
She said that any planned government bond issuance will succeed only if pricing -particularly for medium- to long-term bonds – offers returns that match their position on the yield curve and associated risks. This will help attract investors away from short-term instruments.
Last year, government signalled plans to tap the bond market in 2025 following its Domestic Debt Exchange Programme (DDEP) completed in September 2023.
In an interview with the B&FT, Mrs. Nettey said last year’s investment mood was clouded by fallout from the DDEP and election-year uncertainty. While Ghana’s economy stabilised – GDP held firm averaging 6.3 percent in Q3 2024 and inflation trended lower for much of 2024 – price pressures spiked in the final quarter, unravelling earlier progress.
“We saw GDP being quite steady for a greater part of the year and the rate of inflation was on a downward trajectory. But toward last quarter the inflation rate began rising again, which reversed some of the gains made earlier in the year,” she said.
Inflation ended 2024 at 23.8 percent, above the IMF programme’s 22 percent ceiling and fueled by a drought-driven food cost surge to 27.8 percent. Non-food inflation eased slightly to 20.3 percent. January 2025’s 23.5 percent reading showed persistent pressure. A central bank rate cut meant to spur lending faltered amid election jitters.
“The effects of a reduction in the policy rate may not have been fully realised as expected, seeing it coincided with the election period’s peak. Typically, in election years the investment climate remains in a cautious or wait-and-see mode for the last few quarters,” Ms. Nettey explained.
Nonetheless, investor confidence has ticked up and this has been further boosted since the new government honoured a Feb. 17, 2025 DDEP coupon payment of GH¢6.081billion (US$490million) in cash and GH¢3.46billion in kind, plus a GH¢9.7billion buffer for mid-year obligations.
“The action and publicity surrounding the coupon payments have boosted investor sentiments. It re-enforced the continuum of governance and showed that government is committed to servicing its obligations, which is key in rebuilding trust in the market,” she said.
Recent bond auctions drew bids nearly double the target – GH¢56.45billion versus GH¢22.28 billion sought – pushing Treasury yields down. The recent Treasury auction on February 28, 2025 saw the 91-day bill dip by 369bps to 20.79 percent while the 182-day bill decreased by 240bps to 22.92 percent.
Similarly, the rate on the 364-day bill declined by 460bps to 22.70 percent, marking the largest reduction among the three tenors.
“With interest rates on the T-bills showing some decline over the last few auctions, it is expected that this trend will persist in the short-term.
“The oversubscription signals excess liquidity splashed with confidence to lend to government – and we anticipate this could help lower financing costs for government,” Ms. Nettey added.
Despite these developments the yield curve remains inverted, with coupons on long-term bonds around 10 percent and short-term T-bills above 20 percent.
“If you look at Ghana’s yield curve now, it requires some alignment in terms of the returns on assuming long-term risk to lend to government. Long-dated instruments have coupons under 10 percent while Treasury bills are in excess of 20 percent. As a result, the long-dated instruments are trading at steep discounts to align the yields to pricing at the short end. This needs attention to ensure a more balanced investment climate commensurate with the investment risk,” she said.
Managing this under an IMF programme is tricky, she noted: “Government must implement strategies that will improve economic performance, boost the real sector and bring inflation down to create room for further policy rate cuts”.
The market expectation is that the macros must be reset to impact positively on the investment climate as a quick fix isn’t likely, given DDEP bonds stretching into the 2030s.
“It may not be too soon, because the longer-dated bonds extend well into the 2030s. Nonetheless, the short-term rates trending downward may well be a step in the right direction and must be anchored on strategic policies to spur the economy,” she said.
