New bonds drive traded volumes up 459%

The bond market witnessed a significant increase in volume as trades in the new bonds experienced an uptick last week, reaching GH¢227.44million – a 459 percent increase from the previous week’s GH¢40.72million.

Despite the increase in volume traded, liquidity on the fixed-income secondary market was lower than in the previous week.

The secondary market yields on the new bonds rose over the week due to the ripple-effect of the hike in policy rate from 28 percent to 29.5 percent, while the old bonds – those which were not traded in during the Domestic Debt Exchange Programme (DDEP) – recorded a slight decrease in yield.

The old bonds market was nearly inactive, with only GH¢10.37million in volume traded, making up only 2.12 percent of the market share. The volume traded for old bonds fell by 47.43 percent from the previous week’s GH¢927.9million.

Although the old government bonds, Treasury-bills and corporate bonds recorded a total of GH¢487.8million in volume traded, the money market instruments – particularly the 91-day variant, still dominated the market with a 97.44 percent share.

Treasury-bills remain the preferred investment option for risk-averse investors, with the recent Treasury-bill auction seeing government raise GH¢1.88billion – exceeding their target of GH¢1.77billion by 6.57 percent. Government plans on raising GH¢1.67billion at next week’s auction.

However, market activity has been comparatively uninspiring over the last two weeks, with total trading volumes falling to GH¢62.31million from GH¢299.58million the previous week. Market participants were less active last week due to the unexpected policy rate hike of 150 basis points (bps) to 29.5 percent in March 2023.

The policy rate increase resulted in the Bank of Ghana (BoG) issuing its 14-day and 52-day bills at 29.5 percent and 30.25 percent respectively last week. As a result, the attention of market participants was drawn to the primary auction, reducing trading volumes on the secondary bond market.

Despite the recent policy rate hike and reduced market activity, the market is expected to improve with the March inflation report’s release, 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.

This comes as government is seeking to secure a US$3billion facility for balance of payment support, and the passing of three revenue tax bills by parliament moves government closer to securing the International Monetary Fund (IMF) Executive Board’s approval.

Government has also begun negotiations with Ghana’s Eurobond holders, of which financial assurances are required by the IMF board before approval of the pending extended credit facility programme. These developments could further boost investor confidence in the market.