2yr Note worth GHS 1.53bn due on July 31; Gov’t likely to default on payments to bondholders
Two (2) year treasury note (GHGGOG063942) issued on August 2, 2021, and worth GHS 1.53bn matures at the end of this month – July 31, 2023.
The two (2) year treasury note has a high coupon rate of 17.25% and forms part of the old bonds not swapped or exchanged for new bonds under the first phase of the Government of Ghana’s Domestic Debt Exchange Programme (DDEP).
Data from the Ghana Fixed Income Market (GFIM) as at Friday, July 14, 2023, indicate that the debt security expected to mature in the next 14 days had an opening yield of 44.93% which however, declined to 28.46% at the close of the day.
The decline in the yield from 44.93% to 28.46% can be attributed to increment in the note price which ended the day at GHS 98.17.
Increment in the note price was despite zero trade recorded for the debt security as the day high and day low yields of the two year note were both 28.46%, same as the closing yield of the debt security on Friday, July 14, and is indicative of the bearish sentiments of traders towards the debt security.
Given Government’s current liquidity constraints on the back of the prevailing macroeconomic challenges, prioritization of coupon payments for new bonds under the DDEP and the need to restructure the existing GHS 123bn domestic debt stock to qualify for the $600m second tranche support from the IMF, Government is likely to default or fail on principal payments to investors of the two year note.
As such, investors are urged to be cautious in their anticipation for receipt of principal payments by Government for the two year note as it matures on July 31, 2023.
Government is certainly expected to make principal payments for the two year note in due course, but as to how long it will take Government to make principal payments and the exact date Government will make these principal payments should it fail to make payments on the July 31 maturity date, are currently unknown.
Investors of the two year note are therefore urged to keenly monitor developments pertaining to the Government’s debt securities and the economy at large in order to have a sense of how liquid Government becomes in the coming weeks or months given the implementation of the fiscal reforms under the IMF programme to be able to have a sense of how soon Government is likely to make principal payments on the two year note.
