Second coupon payment on new bonds due this week

The Treasury is set to settle the second coupon payment on new bonds totaling GH¢4.28 billion in cash payments, this week, possibly spurring the market’s liquidity position.

New bondholders are also scheduled to receive a total of GH¢3.24 billion in coupon payments-in-kind (PIK), thus in the form of additional bonds. In addition, the Treasury is scheduled to pay GH¢57.88 million in coupons to holders of the old bonds maturing on August 1,2039.

The settlement of the first coupon payment of GH¢2.4 billion was made in August last year, affirming the government’s efforts toward restoring investor confidence in both domestic and international markets, following the ‘bitter but crucial’ debt restructuring.

Last week on the primary market, the Treasury leveraged the pent-up demand for T-bills to trim its cost of borrowing, resulting in eight consecutive weeks of declines in yields. The 91-day bill fell by 11 basis points to 27.89 percent, the 182-day bill by 5 basis points to 30.39 percent, while the 364-day bill dropped by 30.90 percent.

The Treasury accepted all bids of GH¢5.71 billion demanded across the 91 to the 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.

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, 23rd February 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 was subdued last week as the week’s volume plunged by 9.05 percent w/w to GH¢1.21 billion. February 2028 (coupon [CPN] of 8.50 percent) was actively traded, accounting for approximately 48 percent of the total volume, clearing at 21.45 percent. Similarly, February 2030 (CPN:8.80 percent) and February 2031 (CPN:8.95 percent) garnered interest and settled at 30.50 percent and 22.24 percent, respectively.

Looking ahead, market liquidity conditions are expected to be bolstered this week as the government is expected to pay coupons on all the new bonds. A coupon payment size of about GH¢4 billion is projected to be paid to investors.

Meanwhile, the secondary bond market for GoG papers further declined in activity as the total volume exchanged declined by 22.88 percent w/w to GH¢1.03 billion. Notably, exchanges from the Feb-28 (coupon: 8.50 percent) paper remained the dominant driver of activity, constituting about approximately 66 percent of the aggregate market turnover.

According to Databank, the LCY yield curve tilted northward, as the average YTM on the 2027-2030 papers increased to 22.31 percent (+317 basis points), while the 2035-2038 advanced to 22.99 percent (+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.