Institutional shift to BoG’s bill mutes secondary bond market

Trading on Ghana’s secondary bond market witnessed a noticeable cooldown last week, with volumes plunging by 23.15% to GH¢1.18 billion from the previous GH¢1.53 billion, a development an expert says is tied to the Bank of Ghana’s (BoG) latest monetary instrument – a 273-day bill.

In an exclusive interview, Mr. Isaac Kwesi Mensah, a seasoned market analyst and corporate finance expert at SIC-FSL, provided a deep dive into the subdued market activity and institutional behavior shifting focus away from secondary bonds.

“What we’re seeing is a classic case of reallocation. Institutional investors are temporarily retreating from the secondary bond market, choosing instead to pursue short-term, central bank-backed instruments that offer competitive risk-adjusted returns”

A Muted Outlook

According to Mr. Mensah, the outlook for trading activity in the week ahead remains “relatively muted” as large market participants recalibrate their portfolios in response to the BoG’s newly issued 273-day bill.

“This bill is essentially siphoning liquidity from the bond market,” he said. “It presents a relatively attractive yield with lower credit and interest rate risks, which is quite appealing given the ongoing macroeconomic uncertainties.”

The Bank of Ghana introduced the 273-day bill as part of its strategy to mop up excess liquidity and tighten monetary conditions, a move interpreted by many analysts as another attempt to stabilize inflation and support the cedi.

“From a liquidity management perspective, it’s a smart tool, But from a trading volume standpoint in the bond market, it’s a diversion.”

Bond Market

The previous week’s bond trading was dominated by mid-to-long-term securities. Bonds maturing between 2027 and 2030 claimed the lion’s share of market activity at 57%, with an average Yield-To-Maturity (YTM) of 21.47%, up by 0.5 percentage points.

Meanwhile, the 2031 to 2038 papers contributed 43% of the market volume, with an average YTM of 21.62%.

“The upward movement in yields, albeit marginal, reflects a certain risk premium investors are placing on duration amid shifting interest rate expectations. Investors are watching fiscal signals and monetary direction closely, and many prefer to stay liquid or tilt toward shorter durations when uncertainty looms.”

He emphasized that the yield differentials across maturities are becoming more important than ever, especially as the market anticipates new macroeconomic data and fiscal updates from the Ministry of Finance.

Mr. Mensah pointed out that institutional investors, particularly banks and asset managers, are adopting a “cautiously opportunistic” stance. While the bond market remains attractive in the long term, many players are currently hedging liquidity risks by locking into BoG’s short-term bills.

“This isn’t a vote of no confidence in the bond market,” he clarified. “It’s simply a temporary repositioning to manage portfolio liquidity while remaining responsive to central bank signals.”

He added that fund managers are under pressure to balance performance and safety, especially in the face of potentially volatile inflation numbers and upcoming domestic debt issuance plans.