IN BRIEF

• GHANA
  Fixed Income: Money market liquidity strengthened in November 2023, raising investors and banks’ demand for weekly BOG bills and Treasury bills amidst emerging downward pressure on yields. Investors submitted total bids worth GHS 15.6bn (+14.9% m/m), exceeding the T-bill offer target by 29.0%. The Treasury accepted GHS 15.3bn, surpassing the rollover obligation by 45.4% and the offer target by 26.5%. After peaking along our forecast 30.0% – 33.0% area, yields expectedly showed signs of decline amidst the lower inflation expectations by investors. However, we believe the recent hike in the Cash Reserve Ratio to 15.0% will tighten interbank liquidity and partly mitigate the downward pressure. In December 2023, the Treasury will face an upcoming refinancing obligation of GHS 12.8bn (+21.7% m/m).  Having signaled continued and exclusive reliance on T-bills for FY2024 gross domestic financing of GHS 94.4bn (including GHS 31.8bn buffer for auction shortfalls), we believe the authorities will continue the excess uptakes to build the target buffer.  Given the lower inflation and interest rates outlook, we believe locking-in the 364-day yield offers better inflation-adjusted return over the holding period. 

  Currency: The pace of Cedi depreciation slowed down in November 2023 with the local unit losing 1.0% m/m against the US Dollar on the retail FX market (vs -2.9% in October 2023) as lower energy prices capped FX demand by fuel importers. In the month ahead, we expect the USD 800mn COCOBOD facility to boost FX supply while investors await positive news on the USD 600mn from the IMF. 

• KENYA
  Fixed Income: Demand for Kenyan Treasury bills firmed up in November 2023 as total bids submitted at the weekly auctions increased by 18.7% m/m to KES 163.7bn (USD 1.1bn) while the Treasury allotted KES 156.8bn amidst rising funding cost. We note that the tenor premium between the 91-day and the 182-day bills has tightened significantly in November 2023. As a result, we expect this low tenor premium amidst the rising yields to sustain investor demand for the 91-day bill at the expense of the other T-bills.

  Currency: The Kenyan Shilling weakened against the US Dollar by 1.6% m/m (-19.4% YTD) to trade at a CBK mid-rate of 153.2/USD as investors await a USD 300.0mn drawdown in forex reserve for Eurobond buyback. However, we expect the programme-related IMF disbursement of USD 682.3mn in January 2024 to replenish and rebuild the FX reserves.

• NIGERIA
  Fixed Income: The Treasury accepted NGN 1.1trn (USD 1.3bn) out of the NGN 2.1trn (USD 2.5bn), exceeding the target size by 102.9% with a bid-to-cover ratio of 2.0x. This represents the second consecutive month of excess uptakes substantially above the offer size amidst the rising yields, raising our concern about the Treasury’s finances. Yields expectedly accelerated across tenors amidst the mounting inflationary pressure.  In view of the upside risk to inflation amidst the FX uncertainty, Central Bank Governor, Yemi Cardoso, indicated the authorities plan to adopt an Inflation Targeting framework to strengthen policy credibility.

  Currency: The Naira trimmed some of its losses on the parallel market with an 8.2% m/m appreciation against the US Dollar in November 2023, quoted at 1,165/USD. We view the appreciation on the parallel market as a price correction after the USDNGN seemingly overshot its fair market value during the October 2023 slump. We continue to perceive elevated uncertainty around the USDNGN FX rates after the House of Representatives approved the medium-term expenditure framework with assumed USDNGN rate of NGN750 for 2024, suggesting prolonged widening spreads and arbitrage.