Buyers are adopting a extra cautious strategy as upcoming December basic elections strategy, reflecting considerations about potential market volatility.
Precedence is given on short-term investments, notably in mild of potential dangers related to the market atmosphere.
In a latest observe to traders, IC Securities emphasised the necessity for warning and liquidity – highlighting election-related dangers and the broader risk-off atmosphere.
As a part of its technique, the agency is specializing in short-term repos and stuck deposits with respected banks, whereas retaining a detailed eye on rates of interest and inflation traits.
In its August report, IC Securities famous that the fund closed with a 21.8 p.c Yr-to-Date return. The portfolio composition consists of 49 p.c repos, 23.7 p.c in Treasury payments, and 23.1 p.c in fastened deposits.
The agency’s emphasis on liquidity is a direct response to potential market uncertainties forward of the elections.
“Liquidity stays our precedence within the present risk-off atmosphere,” IC Securities acknowledged, emphasising the necessity to prioritise flexibility and short-term investments throughout this era.
The corporate additionally pointed to stability of rates of interest, with yields for presidency payments remaining comparatively unchanged. Presently, the 91-day and 182-day payments stand at roughly 24 p.c and 26 p.c respectively, whereas the 364-day invoice is at about 27.9 p.c.
Though inflation dropped sooner than anticipated by 80 foundation factors to twenty.9 p.c in July, the cedi continues to depreciate towards the U.S. greenback – now buying and selling at round GH¢16 on the retail market.
This, mixed with regular yields, might affect the Financial institution of Ghana’s (BoG) Financial Coverage Committee (MPC) choices in coming months.
IC Securities anticipates a doable fee reduce by the MPC, as world central banks are anticipated to pivot away from the rate-hike cycle quickly. Nevertheless, the agency cautioned that any fee reduce might put additional strain on the cedi, doubtlessly weakening it additional towards the greenback.
“We’re aware of the potential impression on the forex,” IC Securities famous, whereas underscoring the challenges of balancing decrease charges with forex stability.
The agency’s outlook on rates of interest means that whereas a possible fee reduce might push yields decrease, it additionally presents a chance to lock-in greater yields for longer maturities.
Nonetheless, IC Securities is sustaining its deal with shorter-term investments to guard towards election-related dangers, reflecting its warning concerning market uncertainties as elections strategy.
Databank, in its second-quarter report, echoed this sentiment by outlining a equally cautious strategy to navigating Ghana’s fixed-income market in second-half 2024.
The report forecasted a continued decline in inflation, which might doubtless push Treasury invoice yields downward. Nevertheless, it warned that prime Open Market Operation (OMO) invoice charges and elevated authorities borrowing would possibly hinder a clean decline in yields.
Databank’s report revised its full-year estimate for presidency borrowing from GH¢180billion to GH¢220billion, a 22 p.c improve.
With about GH¢115billion already raised in first-half of the yr, authorities is predicted to lift an extra GH¢105billion within the second half, amounting to an estimated weekly demand of GH¢4billion. This surge in borrowing is pushed by the necessity to refinance maturing obligations, with round GH¢90billion anticipated to mature in second-half 2024 alone.
The report additionally highlighted that OMO payments have gotten more and more engaging to traders, with the BoG’s 56-day OMO invoice yielding 29 p.c in comparison with authorities’s 364-day Treasury invoice fee of 27.9 p.c.
This aggressive fee is drawing institutional traders away from Treasury payments, additional complicating the trail to yield-decline. Industrial banks, underneath strain to keep up optimum money reserves as a result of BoG’s three-tier Money Reserve Ratio (CRR) directive, are additionally adopting a extra cautious strategy to investing in authorities securities.
Liquidity challenges available in the market might proceed to persist, particularly as business banks deal with balancing their reserves and managing systemic dangers. Databank’s report highlighted that these dynamics are more likely to suppress demand for Treasury payments from each business banks and institutional traders, making a extra difficult panorama for traders.
Past the home market, each IC Securities and Databank emphasised the importance of Ghana’s ongoing exterior debt restructuring. Ghana’s debt disaster, which led to a US$3billion bailout from the Worldwide Financial Fund (IMF), stays a key concern for traders.
Nevertheless, the profitable restructuring of exterior debt might present much-needed fiscal house for presidency, doubtlessly bettering investor sentiment towards authorities bonds.
Databank famous that finishing each the Home Debt Change Programme (DDEP) and exterior debt restructuring will doubtless enhance investor confidence, notably within the secondary bond market.
The restructuring efforts, mixed with authorities’s continued dedication to its IMF programme, might result in elevated buying and selling exercise within the bond market and a extra beneficial funding local weather.