Treasury is poised to make the second coupon payment on recently issued bonds, amounting to GH¢4.28 billion in cash, this week. This payment is expected to potentially bolster the market’s liquidity position.
In addition to the cash payments, bondholders will also receive GH¢3.24 billion in coupon payments-in-kind (PIK), which will be issued in the form of additional bonds. Furthermore, the Treasury is slated to disburse GH¢57.88 million in coupons to holders of old bonds maturing on August 1, 2039.
The settlement of the initial coupon payment totaling GH¢2.4 billion was executed in August of the previous year. This action underscored the government’s commitment to rebuilding investor confidence in both domestic and international markets, following a challenging debt restructuring process.
In the primary market last week, the Treasury capitalised on strong demand for T-bills to reduce its borrowing costs. This resulted in eight consecutive weeks of yield declines, with the 91-day bill decreasing by 11 basis points to 27.89 percent, the 182-day bill dropping by 5 basis points to 30.39 percent, and the 364-day bill falling to 30.90 percent.
The Treasury accepted all bids of GH¢5.71 billion demanded across the 91- to 364-day bills. The amount tendered by investors was 17 percent more than the target size of GH¢4.87 billion. This provides the Treasury with sufficient funds to cover today’s maturity size of GH¢4.15 billion, translating into a coverage ratio of 1.37x.
Notably, investors maintained firm demand for the 364-day tenor over the 182-day tenor.
In the coming week, with a maturing debt of GH¢5.44 billion due across all the bills, the Treasury intends to raise GH¢6.27 billion, with the next auction scheduled for Friday, February 23, 2024.
While the week’s target suggests higher funding needs by the government, Apakan Securities said: “We believe the expected coupon payments on the new bonds will help spur the market’s liquidity position. Thus, we expect the Treasury bill rate to decline, albeit at a slower pace”.
Databank in its review also shared a similar sentiment, saying: “We expect investors to price in inflation’s uptick when bidding in subsequent auctions, thus, likely slowing the momentum of decline in T-bill yields in the near -term”.
Secondary market
Activity in the secondary bond market experienced a decline last week, with the total volume dropping by 9.05 percent week-on-week to GH¢1.21 billion. The February 2028 bond, with a coupon rate of 8.50 percent, was the most actively traded, representing approximately 48 percent of the total volume and clearing at 21.45 percent. Similarly, the February 2030 and February 2031 bonds, with coupon rates of 8.80 percent and 8.95 percent respectively, attracted interest and settled at 30.50 percent and 22.24 percent, respectively.
Looking ahead, market liquidity conditions are anticipated to improve this week as the government is set to make coupon payments on all new bonds. It is projected that investors will receive coupon payments totaling about GH¢4 billion.
Meanwhile, activity in the secondary bond market for Government of Ghana (GoG) papers saw a further decline, with the total volume exchanged decreasing by 22.88 percent week-on-week to GH¢1.03 billion. Transactions involving the February 2028 paper, with a coupon rate of 8.50 percent, remained the main driver of activity, constituting approximately 66 percent of the total market turnover.
According to Databank, the local currency (LCY) yield curve shifted upwards, with the average yield to maturity (YTM) on the 2027–2030 papers rising to 22.31 percent (an increase of 317 basis points), while the 2035–2038 papers increased to 22.99 percent (an increase of 592 basis points).
“We expect the bond market to remain sluggish following the uptick in inflation for January 2024, as investor preference will largely reside in T-bills for repricing benefits,” it stated.