Trading volumes on the Ghana Fixed Income Market (GFIM) the arm of the Ghana Stock Exchange which lists and publicly trades government and corporate debt securities – primarily bonds – have reached record highs in recent months, indicating new levels of market liquidity that are attracting investors in droves.
In January 2020 alone, 6,932,993,562 bonds were traded on the market, more than twice the 3,223,772,603 bonds traded during the first month of 2019.
The 4,803,944,134 bonds traded in July last year was a new monthly record for the market which commenced trading in August 2015, but since then that record has been broken on an almost monthly basis. Monthly trading volumes broke the five billion barrier for the first time in October 2019 and have increased by the month since then.
Resultantly, total trading volume in listed bonds for 2019 was 55,552,592,770, up from 37,865,317,843 in 2018 and 30,703,703,753 in 2017.
Augustine Simmons, who heads the GFIM at Cedi House, which houses the GSE, has explained to Goldstreet Business that the sharp and sustained increase in trading volumes is directly the result of a “flight to quality” by portfolio investors following the extensive financial services industry reforms executed recently by the Bank of Ghana and subsequently the Securities and Exchange Commission.
Instructively, the four billion level was first breached in December 2017, just four months after the BoG started its mass liquidations of financial intermediation firms with the liquidation of both UT Bank and Capital Bank. Similarly, the five billion mark was first breached in October last year, just months after hundreds of savings and loans companies and microfinance institutions were also liquidated. The ensuing closure of a host of fund management firms by SEC further intensified the move by portfolio investors from the money market into capital market debt securities.
Such medium to long term securities currently offer yields of over 19 percent per annum. Instructively however most investors have been opting for government securities rather than corporate bonds which offer relatively higher yields – some approaching 25 percent – an indication that low risk is perceived by investors of being of relatively more importance than the yields being offered.
In January this year, government’s three year treasury bonds attracted the most trades, of over 2,451 million bonds worth nearly GHc2,483.836 million in 1,092 deals. This was followed by government’s two year bonds of which nearly 1,640.180 million changed hands in January alone, worth nearly GHc1,697.154 million in 728 transactions. The other type of securities that saw over one billion bonds change hands last month was government’s five year bonds where nearly 1,362.609 million bonds were traded.
During the month four types of ESLA bonds were traded, with tenors of 12, 10 and seven years. Also 472,015 COCOBOD bonds worth over GHc440.843 were traded.
Far fewer corporate bonds were traded, but encouragingly virtually all the issuing companies saw some of their bonds being traded – Letshego Savings and Loans (issued under the former corporate identity of AFB), Barclays Bank, Bayport Savings and Loans, and Izwe Savings and Loans.
The sharp, sustained growth in trading volumes evidences growing liquidity on the GFIM which in turn will encourage the issuance of and subscription to medium and long term bonds by government and corporate issuers alike.
Government can take advantage of this to issue more of such tenured securities to extend the maturity profile of its public debt and thus reduce its refinancing requirements. Corporate issuers on their part can take advantage to secure longer term financing than their commercial bankers can offer them and at cheaper cost too, since bank loans of such tenors, if available at all, carry interest rates of up to 30 percent currently.