Government misses bond raising target again by 28%

For a third consecutive month, in May 2022, dampening liquidity conditions on the money market continued to weigh on government’s auction target as GH¢6.43billion target size was missed.

A total amount of GH¢4.60 billion was raised from the market during the month under review, indicating a shortfall of 28 percent compared to the total auction target for the month.

Nevertheless, this was an improvement on GH¢2.97billion raised from the market in April 2022, which fell short by 35 percent of its target.

Since August 2021, Treasury, has on a monthly basis, missed its auction target. For instance, in August last year, the auction coverage ratio stood at 0.96x, declining further to 0.84x in October 2021; however, it recovered gradually to 0.93x and 1.12x in January and February 2022, respectively. Since then, the auction coverage ratio has worsened in these past three months.

The trend of lower uptake of treasury securities by investors continued to stifle the treasury’s ability to cover up a sum maturing face value of GH¢5.49billion across 91 to 364-day bills for the month, translating into a maturity cover of 0.84x.

Apakan Securities Limited – a market research company – commenting on the trend in its May 2022 analysis of the market, said: “Faced with persisting inflationary risk concerns, policy rate hike and thin GH¢ liquidity conditions in the market, we expect T-bills’ yields to continue its rally, moving forward. Similarly, yields on GoG bonds are expected to adjust upward.”

On the back of the incessant inflationary pressures and tight cedi liquidity conditions in the market, yields on the treasury bills trended upward at a much swift pace.

The 91-day bill increased by 253 basis points (bps) month on month (m/m) to 19.94 percent, while the 182-day bill added 442bps m/m to settle at 22.95 percent.

The 364-day bill also rose much higher up by 479bps m/m to 24.56 percent.

Nonetheless, during last week’s auction, the Treasury exceeded its target for the 91 and 182-days treasury bills, nearly 14 percent oversubscription, securing GH¢1.395billion above the target of GH¢1.228billion.

Secondary market

Last week was a rather slow trading session on the secondary market as the liquidity crunch deepens its toll on the market.

According to Fincap Securities Limited – Broker-Dealer and investment advisory company duly registered – the market over the week recorded GH¢2.87billion in volumes of the Government of Ghana (GoG) bonds, notes, and bills traded, accounting for a 16.05 percent decline in market action from the previous week’s GH¢3.41billion.

From a perusal of recent data on the market, market interest remains in the short to the medium-term papers, particularly among the 2023s, with little activity noticed in the longer-term tenors.

The short-dated papers maintained their dominance on the market, with the 2023s recording 34.35 percent of market turnover. The corporate bond market also recorded bond transactions to the tune of GH¢398.62million over the week.

“Average yield tipped upward as securities across the curve posted significant yield rises over the week against the backdrop of investors’ need to beat inflation and realise some real returns on their investments,” Fincap said.

There are scheduled in the coming week, coupon payments to the tune of GH¢490.94m. We anticipate that this liquidity will flow back into the market to cushion the market against the impact of the liquidity strain.

With unfavourable liquidity conditions persisting in the market, the market expects offers to outstrip bids as participants seek to unlock liquidity.