Market participants are optimistic that the bond market will open up to more trade, following a successful settlement of the new bonds and the valuation complications being dealt with. Furthermore, the oversubscription of Treasury bills and the expected decline in yields have boosted sentiments, which is expected to positively impact market activity.
The market last week saw a slowdown in activity after the settlement of new bonds under the Domestic Debt Exchange Programme (DDEP), as this left market participants grappling with valuation of the new bonds post-settlement – leading to some offers with no bids to match.
However, Constant Capital – an investment advisory firm said: “We expect the market to start opening up to trade once the valuation complications have been dealt with. Due to the high demand for short tenors, the Treasury-bill market saw modest activity, with May 2023 and Aug 2023 maturities trading heavily”.
Available data show that the bond market did resume its activity toward the end of last week, with the new bonds recording a total trading volume of GH¢746million. The six-year and seven-year papers were actively traded on the market, with their total volumes traded accounting for 94 percent of the total trade recorded for the new bonds. The Feb-2029 with a coupon rate of 8.65 percent and February-2030 with coupon rate of 8.80 percent both settled at par value last week.
Meanwhile, the old bonds recorded a total volume of GH¢4million, with the January 2027 coupon rate of 19.25 percent being actively traded.
Looking ahead, Apakan Securities in its review of the market said: “Moving forward, we expect market activity to pick up in the new bonds. In contrast, we expect the old bonds to record less activities as their prices are trading at a steep discount. Investors are more likely to hold these to maturity in order to avoid making losses due to high yields”.
The DDEP was successful, with a subscription rate of about 84.91 percent reflecting a total outstanding principal amount of GH¢97.75billion that was eligible to be exchanged. GH¢87.76billion was tendered and accepted – a significant step for government towards securing the US$3billion International Monetary Fund (IMF) economic support programme and restoration of macroeconomic stability. The settlement date was extended to February 21, 2023 in order to ensure efficient settlement of the new bonds.
Going forward, market participants are keeping a close eye on developments in the economy – such as the IMF bailout and restoration of macroeconomic stability – as these factors are likely to impact market activity. Analysts also expect the Treasury-bill market to remain active, with oversubscription expected in the upcoming auction while yields are expected to decline further.
Uncertainties ebb in primary market
On the primary market, Treasury bills were oversubscribed by 76 percent last week as uncertainties ebbed.
Constant Capital said the impetus for increased demand in Treasury-bills is due to the low risk associated with them, and market expectations of a further drop in yields.
Compared to a target size of GH¢2.89billion, investors tendered a total GH¢5.07billion across the 91- to 364-day bills. The Treasury accepted all the bids tendered, as its liquidity conditions remain tight. The amount accepted is sufficient to cover today’s sum maturing face value of GH¢2.65billion, translating into a maturity cover of 1.91x.
Yields on Treasury-bills experienced a remarkable drop last week as demand heightened. The 91-day fell by 12 basis points (bps) to settle at 35.55 percent, while the 182- and 364-day bills dropped by 16bps and 141bps to clear at 35.56 percent and 34.21 percent respectively.
“To hedge against reinvestment risk, investors rotated toward the 364-day bill; demand for the 364-day bill was twice as much as the 182-day bill, although the 91-day bill remains the most preferred bill,” Constant Capital added.
Next week, the Treasury plans to raise a total amount of GH¢2.78billion across the 91- to 364-day bills to refinance a sum maturing face value of GH¢2.55billion in short-term papers due, with the auction slated for Friday, March 3, 2023.
