Real returns on fixed income securities decline – Databank Research

Real returns on fixed-income securities are depressed with the high inflation profile, continually undermining the Treasury’s financing operations, Databank Research Weekly Fixed Income update has revealed.
According to the report, the short-term interest rates are misaligned, resulting in negative real yields, which could prompt the Monetary Policy Committee (MPC) to act in the week ahead.
However, cedi liquidity levels are already tight on the interbank market, and a further tightening of the Monetary Policy Rate could stifle economic growth.
“So, while we maintain an additional 200 basis points (2%) hike in the policy rate in 2022, we expect the MPC to exercise restraint in May2022, deferring a potential 100 basis points (2%) hike in MPR to July 2022”.
The Treasury attracted the most demand from investors over nine auctions last week, accepting all bids worth GH¢1.25 billion.
The uptake exceeded the maturity due today, May 16, 2022, by 2.89% but fell short of the auction target for the week by 36.3%. The auction cleared at higher nominal yields across the maturity spectrum amidst a further tightening in interbank cedi liquidity levels, but real yields remain significantly depressed.
The report pointed out that the Treasury may have to offer a significant risk premium to refinance the May 2022 maturity falling due next week.
The domestic and external market conditions are also unfavourable, with the surge in inflation further compressing the real returns on fixed-income investments.
In view of this, investors could demand a steep nominal yield to rollover the maturing bond, in the event of a refinancing trade.