Prof. Lord Mensah predicts major correction in yields on T-Bills and bonds
Associate Professor at the University of Ghana Business School (UGBS), Prof. Lord Mensah, has made a compelling case for the impending correction in yields on short and long term investments.
The correction, he claims, will be the result of the recently executed domestic debt exchange programme, which is expected to bring about a series of benefits to the Ghanaian economy. In particular, he notes that the correction in yields will lead to yields on short term investments being less than yields on long term investments.
“The investment yield curve is about to go flat and further upwards. This means, short term investment will yield less compared to long term. As it stands, the curve is downward sloping, signifying a depressed economy. We need the correction for economic expansion.
“Yes, the correction is suppose to be one of the benefits to the Debt exchange program. All interest structures are going to pick up from the government new bond structures from now on,” he said in a tweet.
This development is of particular interest to investors in Ghana, as it represents a significant shift in the investment landscape. Historically, yields on short term investments have typically been higher than those on long term investments, as short term investments are considered to be more risky due to their shorter duration.
However, as a result of the domestic debt exchange programme, this trend is expected to be reversed, with yields on long term investments now being expected to outstrip those on short term investments.
This shift in yields is already being observed in the market, with yields on Treasury Bills falling from an average of 35% to 19%, and expected to decline further. This represents a significant reduction in the returns on short term investments, and is likely to prompt investors to consider alternative investment strategies.
While the impact of this shift in yields on the wider economy remains to be seen, it is clear that it will have a significant impact on the investment landscape in Ghana. Investors will need to carefully consider their investment strategies in light of these changes, and be prepared to adapt to a shifting market environment.
Ultimately, the success of the domestic debt exchange programme will depend on how well it is able to deliver on its promises of correcting yields, and how effectively it is able to manage the broader economic implications of this shift.
