Short-term yields remain under pressure despite upward inflation expectations

Short-term yields have remained under pressure despite higher short-term inflation expectations on the back of significant depreciation of the local currency in July. We expect the authorities to announce higher inflation for July next week Wednesday as weaker local currency leads to imported inflation. The GHS has depreciated by 3.6% against the USD in the last one-month. The yield on the 91-day bill remained unchanged at 13.31% whiles the 182-day bill softened marginally by 1bs to 13.82% this week versus 13.83% last week. See the current yield curve of the Ghanaian economy in figure 1 below.

The drop in treasury yields in the face of upward inflation expectations is likely to reinforce the behavior of investors who put their funds into risky high-yielding fixed deposit products sold by non-bank financial institutions and microfinance institutions. There was weak demand for treasury securities as government raised GHS342.86mn, which was below the target of GHS414.00mn for the week. See market activity charts for this week below.

Overall government borrowing from the domestic market has slowed in 2018 as government aims to reduce the fiscal deficit from an estimated 6% in 2017 to 4.5% in 2018, buoyed the introduction of new tax measures in the mid-year budget to boost revenue generation and cut in expenditure in the worst case scenario. See market activity charts for year-to-date below.

Next Week

We expect government to auction GHS528mn short-term treasury bills on Friday August 10, 2018, to be issued on Monday August 13, 2018. Investors are advised to submit their bids by 13:00 GMT on Friday August 10, 2018.

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