Prof. Lord Mensah – an Associate Professor at the University of Ghana Business School (UGBS), has made a compelling case for the impending correction in yields on short and long-term investments.

The correction, he claims, is attributed to the recently executed domestic debt exchange programme which is expected to bring about a series of benefits to the Ghanaian economy.

In particular, the Professor noted that the correction in yields will lead to yields on short term investments being less than yields on long term investments.

This development, as disclosed by Prof. Mensah, is of particular interest to investors in Ghana as it represents a significant shift in the investment landscape, adding that: “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.”

According to Professor Lord Mensah, the 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.”
Professor Lord Mensah

Ultimately, the Professor divulged that the success of the domestic debt exchange programme will depend on how well the government 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.

T-Bill Rate Reduction To Boost Private Sector

More so, Professor Lord Mensah has disclosed that the significant fall in T-Bill rates is a positive outcome, which aims to reduce the country’s total debt stock and uplift private sector businesses in Ghana.

He argued that the reduction in rates will benefit the private sector by lowering the cost of borrowing for production, resulting in lower prices for goods and services.

Lower rates, as explained by Prof. Mensah, means that the cost of borrowing for the government and the private sector is reduced, resulting in lower interest payments and increased investment in the economy. “This, in turn, could lead to higher economic growth and job creation,” he added.

The government’s efforts to bring down Treasury bill rates seem to have paid off, as reports suggest that it has saved ¢220 million from the significant fall in Treasury bill yields. The government secured ¢6.15 billion from the auction, representing a 121.6% oversubscription.

The pricing of the short-term instruments was reduced from 35% to a yield of 24.16% for the 91-day T-bills, while that of the 182-day and 364-day bills were sold at 26.55% and 27.54%, respectively. The interest cost for the March 7, 2023, T-bills auction was ¢762.4 million, with a Weighted Average Rate of 26.18%.