Spread in Ghana’s bond yield surprising – Dr Addison
Governor of the Central Bank, Dr Ernest Addison, has described as surprising, the recent widening in the yields of the country’s long term-dated debt instruments – bonds.
According to the Governor, the bond spreads is despite a successful bond issuance in April this year – $3 billion Eurobond.
Making the assertion at the 2021 Annual Bankers Week Dinner of the Chartered Institute of Bankers, Dr Addison however, remarked that the bond spreads can be attributed to investor sentiments that fiscal deficit outturn for 2020 is unsustainable and thus expecting very bold and decisive measures from the government to re-anchor fiscal consolidation and stabilize debt.
“The recent widening of the Ghana’s sovereign bond spreads after a successful bond issue in April 2021 surprised all of us, although we were aware of investor sentiments and their assessment of Ghana’s fiscal risks as they see the fiscal deficit outturn for 2020 as unsustainable and expecting very bold and decisive measures from the government to re-anchor fiscal consolidation and stabilize debt.
“Investors have assessed that, as compared to our peers, Ghana required a stronger fiscal rectitude to re-establish investor confidence, and did not see the mid-year budget as addressing their sentiments. The markets assessment of the 2022 budget also suggest lingering doubts about the ability of the revenue measures announced to translate into a large increase in domestic revenue. To add to this, government expenditure is projected to increase significantly in 2022,” remarked Dr Addison.
Speaking further at the event, the Governor noted the widening spread triggered investor sell-offs and has created a huge financing gap which has put pressure on the local currency.
“As a Market Access Country, we have a huge burden to demonstrate a strong recovery and to ensure that the bold revenue measures introduced yield the required results.
“We are at a point where there is no room for policy forbearance on all levels, otherwise the huge financing burden could unravel the anchor and erode the gains we have made in the last 4 years,” he added.
As of December 2, 2021, yields on Ghana’s 2-year, 5-year, 10-year and 30-year bonds were 19.75%, 18.30%, 19.75% and 20.20% respectively.
Yield or bond spread is the difference between the yield of two different classes of bonds, it is usually used as an indication of the pricing or valuation of a bond by investors.
When yield spreads expand or contract, it can signal changes in the underlying economy or financial markets.
