FirstBanC’s fixed income update on GHC892.83 3-year GoG Bond

The Government of Ghana, through the book-building process, issued the third 3-Year Bond for this year on 25th September at a coupon rate of 18.25%.

Even though the announcement for the issuance did not give an indicative amount, the Ministry of Finance intended to raise GHC500m per the issuance calendar for 3Q17.

Out of the GHC940.83m worth of bids tendered, 94.90% of that amount was accepted (GHC892.83m). Prior to this issue, two other 3-Year bonds were issued this year in March and June at coupon rates of 21.5% and 18.5% respectively.

Yields on Government securities have trended downwards from the beginning of the year due to Government’s Medium Term Debt Strategy of re-profiling public debt to longer-term maturities. This is aimed at reducing the frequent refinancing of maturing instruments and to support in the overall debt management strategy.

From January to August this year, the value of medium and long-term instruments sold by government is 80% more than what was sold for the same period last year. On the contrary, the value of short term instruments sold by government has been 49% less than completed bids for the same period last year. The yield curve has normalized with longer dated bonds attracting higher returns than shorter dated ones.

This has increased the appetite of local investors for medium and longer dated bonds in order to lock in higher rates.

However, investors who are seeking even higher returns than the yields on government securities are diverting funds into equities and fixed income securities sold on the secondary market amongst others. Total volume and value traded for securities listed on the Ghana Stock Exchange for the 1H17 were up by over 300% and 160% respectively compared to same period last year.

Similarly, activity on the secondary fixed income market increased by over 80% for the 1H17 compared to 1H16 as investors sought to buy already issued securities with higher yields. We expect yields on government securities to remain stable at current levels. However, there exists inflationary risks and potential global monetary policy actions which could push yields up.