Assessment Of The Decline In The Five Year Bond

The Government of Ghana recently issued a 5-yr bond at a yield of 18.75%, representing a 600bps decline from the earlier issue of 24.7%. The yield decline was in line with the general decline in treasury yields since beginning of year.

We believe the decline in the 5-year bond yield heralds the possibility of further downward pressure on pending 1- year, 2-year and 3-year treasury issues in the subsequent months ahead.

Possible Causes of the Treasury Decline:

Our in house research indicates that declining inflation, on-going IMF fiscal consolidation and anticipated increase in oil receipts are collectively accounting for yields decline in the country. The availability of alternative funding sources, from the on-going IMF program, and increasing crude oil production, amid favourable international oil prices, have collectively resulted in decreased Government’s demand for domestic debt. We expect a decline in Government’s budget deficit and further increase in Governments tax revenue to sustain this trend in FY 2017.

Our Expectations:

Our yield spread assessment indicates a further drop in the yield of the 1year treasury from 19.50% to around 17% -18% ranges. This will be in line with the rectification of the yield curve from the current barbell shape to an upward sloping curve.