Ghana plans to boost transparency in bond trading by reporting prices for benchmark government debt to the stock exchange, letting investors in West Africa’s second-biggest economy see changes in the figures more quickly.
Central Securities Depository Ghana Ltd., which tracks trades in government and central bank debt, is set to merge with the Ghana Stock Exchange’s register by the end of June, Chief Executive Officer Stephen Tetteh said in an e-mailed response to questions in Accra, the capital, on April 24. By July, prices will be sent to the bourse, bringing Ghana closer in line with South Africa and Nigeria, the continent’s two most liquid markets, where bonds are traded over-the-counter with transactions reported to the exchanges and price providers.
“The market must know what is happening,” Tetteh said. “We are working with the stock exchange to stream our information to them.”
Ghana’s benchmark three-month borrowing costs are the second-highest among sub-Saharan African countries tracked by Bloomberg at almost 23 percent. The nation’s bourse is the world’s best-performing equities gauge this year with a 45 percent gain, even as a lack of liquidity leaves investors searching for ways to buy in. Two-, three- and five-year debt are listed on the market while trading is done over-the-counter. After the merger, 91- and 182-day Treasury bills and one-year bonds may also be listed, while over-the-counter trading will continue, Tetteh said.
Foreign investors can’t buy securities with terms below two years on the primary market, although they can in secondary trading, Adams Nyinaku, head of treasury at the Bank of Ghana said on April 12.
Making government debt more transparently traded “should provide a greater level of comfort to non-resident investors, which could help increase foreign capital inflows,” Angus Downie, London-based head of economic research at Ecobank Transnational Inc., said in an e-mailed response to questions on April 25.
Interest in Ghanaian issues has been rising, with almost 25,000 new accounts opened at the central bank’s depository in the first quarter from about 12,000 in the same period a year before, Tetteh said.
While greater transparency may boost demand, Downie said there may still not be enough bonds to buy as the world’s second-biggest cocoa producer struggles with a lack of liquidity.
“The local market is relatively illiquid, and dominated by buy-and-hold investors,” he said. “In practice there may not be a significant boost to trading from this move.”
The merged depository may decide whether to list all government and central bank securities on the stock exchange and allow debt trading similar to the equities, Tetteh said.
“It does not matter whether the transaction is on the exchange or through the over-the-counter market,” he said. “The important thing is the current price at which the security is trading should be available to the market.”
Making debt prices transparent will allow the “true nature” of Ghana’s yield curve, which is currently negative, or inverted, to emerge, Joseph Hinneh, a bond trader at CAL Bank Ltd. in Accra, said by phone today.
“Because foreign investors by law only participate in medium-term and longer-term dated bonds, the yields are significantly different from the shorter-term instruments,” he said. “With transparent prices, I expect local investors to be informed and in the long run begin to behave like the foreign investors.”
Ghana’s 91- and 182-day bill and one and two-year bond yields are between 22 percent and 23 percent, while the three-year bond has a rate of 18.1 percent and five-year debt is at 18 percent, according to data from the local unit of Standard Chartered Plc.
The stock exchange’s composite index retreated for the first time in four days, falling less than 0.1 percent to 1,800.73 by the close in Accra. The cedi gained for the first time in four days, adding less than 0.1 percent to 1.9745 per dollar by 5:22 p.m., paring a decline this month to 1.9 percent.