- …due to favourable interest rates
Activities across the local debt market are at an all-time high as investors shift attention from equities on the back of rising inflation and interest rates, the latest fixed income report has shown.
Currently, across the medium to long term, securities on the market have increased in yields from around 16.19 percent to 20.85 percent after Bank of Ghana increased the policy rate to 17 percent, with inflation now at 15.7 percent.
The Ghana Fixed Income Market (GFIM) closed last month with a new all-time high recording volume of 28.13billion traded, valued at GH¢28.74billion, breaking the record set in the same period last year of 26.68billion in volumes at GH¢27.82 billion, according to the Ghana Stock Exchange. The volume traded was a 45.53 percent increase from the 19.33billion traded in February 2022.
Cumulatively, volumes traded from January to March 2022 were 64.14billion, valued at GH¢65.04billion, representing about 6.98 percent and 5.33 percent respectively, compared to the trades in the same period last year.
Unlike the equities market, the trajectory of GFIM is reflective of investors seeking safety in the fixed income securities – a demonstration of the desire to hedge. Investors are still cautious about the equities side of the market, and this reflects in a handful of stocks as opposed to many, driving the equities market performance, which has been making negative returns for investors during the first quarter of 2022.
Yields have remained on the ascent, largely driven by a dearth of demand for treasuries and the policy rate hike by the monetary policy committee (MPC). This week, the yield on the 91-day bill rose to 15.74 percent up by 89 basis point (bps), while the 182-day increased by 47bps to settle at 15.93 percent. The 364-day bill posted the strongest performance rallied by 116bps to clear at 18.27 percent.
On the outlook for inflation, APAKAN Securities Limited expects a higher inflation print around 16.30 -17.10 percent for March-2022, thus, driving yields up on the money market up.
During last month, activities on the corporate side of the market saw a 90 percent increase to 1.56billion in volumes from 821.38million in the same period in 2021. Government notes and bonds traded total volumes of 56.17billion, representing an increase of six percent over the same period last year; whereas government bills traded volumes of 2.53billion against 1.53billion in March 2021.
Market Development
The development and growth of the corporate bond market have been a key focus of the managers of the market in 2022, among several other initiatives which are intended to be undertaken to boost the development of the corporate bonds market.
For instance, to deepen the liquidity of the market, 2022 has been slated as the year to launch securities lending and borrowing under the Global Master Securities Lending Agreements.
Crowding Out
Notwithstanding the impressive performance of the fixed income market so far this year, the private sector has had to endure the crowding-out effect, resulting in slower growth in credit to the private sector due to the heightened risk-aversion of investors, especially banks.
The crowding-out effect is both the result of too much borrowing by government, and the unwillingness of commercial banks to lend to the private sector.
It appears, though, that even if government slows down its borrowing or even lowers the yield on treasury securities – as can be seen on the market – commercial banks are less likely to aggressively push up their loan books, as the banks are currently cautious and concerned about the elevated credit risk due to the pandemic.
