Appetite for short-term funds, macroeconomic data to drive the direction of yields in 2024, says GCB Capital
According to GCB Capital Research, the uncertain market dynamics in 2023 and the Treasury’s reliance on the short end of the domestic market as the main funding source amidst the heightened inflation pressures kept nominal yields elevated.
However, given the limited options for the different classes of investors, demand remained firm throughout the year, and the Treasury exceeded its Public Sector Borrowing Requirement (PSBR) for 2023, raising about GH¢153.21bn from total bids worth about GH¢157.08bn against the PSBR target of GH¢137.30bn.
The Treasury’s cost of funding, GCB Capital notes, ranged between 18.53% and 35.92% across the T-bill curve, averaging between 26.78% and 31.13%.
Given the elevated macroeconomic uncertainties, the immediate post-DDEP push to trim the cost of T-bill funding was short-lived. Initially, the yields dropped sharply from around the mid 35% levels to the lowest range of 18.53% to 26.82% within three auctions following the Treasury’s aggressive yield compression strategy.
However, nominal yields reversed course after that to the 30% to 33.7% range.
Looking ahead, GCB Capital anticipates a steady yield correction cycle in 2024, driven by data-centric factors such as the pace of disinflation, short-term fund demand, and fiscal performance.
The report suggests that, with supportive data, the 91-day rate could potentially ease to approximately 22% by the close of 2024.
“We expect the steady yield correction cycle that started around Nov-23 to be data-driven, hinging on the pace of disinflation, the appetite for short-term funds and the fiscal performance. The 91-day rate could potentially ease to around the 22% levels by the end of 2024 with supportive data,” it noted.
