Traded volume of Gov’t’s new bonds up by more than 450%
Last week, the bond market in Ghana experienced a significant increase in volume for new bonds, reaching GH¢227.44 million – a staggering 459 percent increase from the previous week’s GH¢40.72 million. This uptick in new bond volume traded, however, was not accompanied by higher liquidity on the fixed-income secondary market, which was lower than the previous week.
The surge in secondary market yields on new bonds was caused by the ripple effect of the recent policy rate hike from 28 percent to 29.5 percent, while old bonds recorded a slight decrease in yield. Interestingly, the old bonds market was almost inactive with a meagre GH¢10.37 million traded, constituting only 2.12 percent of the market share. This figure represented a 47.43 percent drop from the previous week’s GH¢927.9 million in volume traded.
Despite the total volume of government bonds, treasury bills and corporate bonds traded for GH¢487.8 million, the money market instruments, especially the 91-day variant, remained the preferred investment option for risk-averse investors with a 97.44 percent share of the market.
Notably, the recent Treasury-bill auction saw the Ghanaian government raise GH¢1.88 billion, exceeding the initial target of GH¢1.77 billion by 6.57 percent. The government is, therefore, planning to raise GH¢1.67 billion at next week’s auction. However, the market activity has been comparatively uninspiring over the last two weeks, with total trading volumes falling from GH¢299.58 million the previous week to GH¢62.31 million.
Market participants were less active due to the unexpected policy rate hike of 150 basis points (bps) to 29.5 percent in March 2023, resulting in the Bank of Ghana issuing its 14-day and 52-day bills at 29.5 percent and 30.25 percent, respectively, last week. As a result, the primary auction drew the attention of market participants, reducing trading volumes on the secondary bond market.
Despite the recent policy rate hike and reduced market activity, there is hope for the market with the release of the March inflation report, which is expected to show a marginal drop in the inflation rate. This drop could further boost investor confidence in the market.
However, analysts are bearish on the market this week, predicting that activity on the market will remain lifeless as investors seek better investment alternatives. The holiday-shortened trading week is also expected to weigh on trading volumes.
In the meantime, the Ghanaian government is seeking to secure a US$3 billion facility for balance of payment support. The passing of three revenue tax bills by parliament moves the government closer to securing the International Monetary Fund (IMF) Executive Board’s approval. These developments could boost investor confidence in the market.
The Ghanaian bond market witnessed an increase in volume traded for new bonds, but liquidity on the fixed-income secondary market was lower than the previous week. The market is expected to improve with the release of the March inflation report, but analysts predict that the market will remain lifeless this week due to investors’ search for better investment alternatives. Finally, the Ghanaian government’s efforts to secure a US$3 billion facility for balance of payment support and approval of the pending extended credit facility program could boost investor confidence in the market.