Secondary market activity surges as valuation issues find resolution

Secondary activity witnessed a significant surge last week, achieving its highest traded volume since the settlement of the new bonds. The total traded volumes skyrocketed from GH¢117.11million to GH¢459.34million, showcasing a remarkable increase.

Market participants – who had been grappling with valuation challenges concerning the Payment In Kind (PIK) component of the new bonds – finally found a resolution, leading to an upsurge in activity.

The majority of trading activity centred on the new bonds, accounting for approximately GH¢398.63million; which represents a substantial 97.31 percent week-on-week rise. The trading predominantly focused on short- to medium-term papers, with notable attention given to the actively traded Feb-2027 (CPN: 8.35 percent) bond, clearing at a yield of 9.26 percent. Additionally, the Feb-2028 (CPN: 8.50 percent) bond settled at 9.42 percent.

The robust secondary market activity serves as a positive development for investors and market observers, who were eagerly awaiting the resolution of the valuation issues.

Apakan Securities expressed optimism in its market analysis, stating: “We expect market activity to pick up as the valuation issues have been resolved”.

This sentiment aligns with broader market expectations, as investors anticipate a more vibrant secondary market in the weeks to come. The robust trading volumes, coupled with the strong performance of short- to medium-term bonds, indicate a market poised for growth.

Constant Capital provided a review of the market, commenting: “We expect a quiet session this week while the market awaits the inflation reading for April 2023, which we anticipate will show a decline in the CPI print. Coupon pay-outs on selected old bonds scheduled for this week could also fuel market liquidity”. This cautious outlook reveals that investors are closely monitoring economic indicators and potential market drivers.

Turning to the primary market, rising money market yields have rekindled investor interest in government bills. Auction results from the previous week highlighted a consistent oversubscription of Treasury bills for the sixth consecutive week. Investors submitted an impressive amount of GH¢2.57billion, surpassing the target size of GH¢1.83billion by 40 percent.

The government successfully sold enough Treasury bills to cover the maturing face value (FV) of GH¢1.75billion across all the bills. Notably, the 91-day bill experienced a 31-basis-point increase, reaching 20.26 percent; while the 182-day bill rose by 12 basis points to 22.83 percent. Similarly, the 364-day bill inched up by 10 basis points to 27.36 percent.

With GH¢2.31billion in maturing FV due next week, the government aims to raise GH¢3.33billion this week through the same range of bills. The differential between the target size and the maturing value stands at GH¢1.03-billion, indicating heightened financing needs by the government in the money market. As a result, analysts anticipate that yields on Treasury bills will continue to rise in the upcoming auction, assisting the government in meeting its financial targets.

In the primary market, rising money market yields continue to attract investors to government bills. The oversubscription of Treasury bills for the sixth consecutive week demonstrates the strong demand for these instruments. The government’s successful auction, surpassing the target size, indicates investor confidence amid limited options and provides the necessary funds to cover maturing face values of Treasury bills.