According to market experts, this week’s oversubscription of the government of Ghana’s Treasury bills and decline in yields have boosted investor sentiments and a sign that the short end of the market is picking up.

One of such experts is the former Minister of Finance, Mr Seth Terkper, who posited that the recent oversubscription that has been witnessed with Treasury bills showed some level of confidence is returning to economy and “it’s a good thing”.

In the intervening time, 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. This is expected to positively impact market activity.

A similar sentiment was echoed by Constant Capital – an investment advisory firm that 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 August 2023 maturities trading heavily”.

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, available data showed that the bond market did resume its bullish activity toward the end of last week, with the new bonds recording a total trading volume of GHC746 million. The six-year and seven-year papers were actively traded on the market, with their total volumes traded accounting for 94% of the total trade recorded for the new bonds.

The February 2029 with a coupon rate of 8.65% and February-2030 with coupon rate of 8.80% both settled at par value last week. Meanwhile, the old bonds recorded a total volume of GHC4 million, with the January 2027 coupon rate of 19.25% being actively traded.

What Experts Expect Going Forward

Looking ahead, experts expect market activity to continue to pick up with the new bonds. In contrast, they expected the old bonds to record less activities as their prices are trading at a steep discount. This is because investors are more likely to hold these bonds to maturity in order to avoid making losses due to high yields.

The DDEP was successful, with a subscription rate of about 84.91% reflecting a total outstanding principal amount of GHC97.75 billion that was eligible to be exchanged. GHC87.76 billion was tendered and accepted – a significant step for government towards securing the US$3 billion International Monetary Fund (IMF) economic support programme and restoration of macroeconomic stability.

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.

On the primary market, Treasury bills were oversubscribed by 76 percent last week as uncertainties ebbed.

Constant Capital explained that 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 GHC2.89 billion, investors tendered a total GHC5.07 billion 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 the current maturing bonds’ face value of GHC2.65 billion, translating into a maturity cover of 1.91x.

Next week, the Treasury plans to raise a total amount of GHC2.78billion across the 91- to 364-day bills to refinance a sum maturing face value of GHC2.55 billion in short-term papers due, with the auction slated for today, Friday, 3 March 2023.

As it stands now, the government has no other option for borrowing than Treasury bills as restructuring is going on. However, Mr Seth Terkper was right when he said running the economy on only treasury bills is an unrealistic position.