IN BRIEF

• GHANA
  Fixed Income: Banks’ holding of BOG bills reduced by GHS 10.7bn (-32.6%) post-hike in CRR to GHS 22.0bn as of end-December 2023. However, demand for T-bills remained generally strong at an average weekly bid of GHS 4.0bn. The Treasury accepted all bids tendered (GHS 16.3bn) due to the high funding requirement for maturity refinancing, FY2023 deficit financing and building of cash buffer as telegraphed in the 2024 budget. Yield movement was mixed in December 2023 as downward pressure from the sharp disinflation offset the upward pressure from the CRR hike. As expected, real yields turned positive on account of the sharp drop in annual inflation with the ongoing disinflation intensifying the downside risk to nominal yields. We, thus, reiterate our view that the 364-day tenor offers more attractive real yield over the holding period, especially for investors agnostic to election and FX risks.
  
  Currency: The Cedi enjoyed stability in December 2023, helped by the BOG’s monetary squeeze, the US Dollar weakness occasioned by the FED’s dovish outlook, and the USD 600.0mn from COCOBOD syndicated loan. In line with our FY2023 forecast, the mid-USDGHS closed 2023 at approximately 12.0/USD on the retail market, representing a 0.3% m/m appreciation (-15.6% annual loss). In FY2024, we foresee the mid-USDGHS rate at 13.1/USD (-8.4% annual loss) with improving fundamentals, expected external inflows and appropriate monetary policy stance partly offsetting election-related and external debt restructuring uncertainties.
  
• KENYA
  Fixed Income: Investor demand for Kenyan Treasury bills softened in December 2023 (-39.9% m/m), ostensibly reflecting a squeeze in KES liquidity following the 200bps hike in the Central Bank Rate (CBR) to 12.5% and banks’ seasonal need for higher cash balances. Yields continued their upturn across the front to belly of the curve, worsening the humped curvature as Treasury debt issuance slowed at the back-end while upscaling across the front to belly amidst the CBR hike. Following the indication by the Treasury Cabinet Secretary that Kenya’s cash flow challenges are due to prioritizing near-term debt maturities, we think the market is pricing short-term liquidity risk and discounting insolvency in the yield curve. 

  Currency: The Shilling’s losses deepened in December 2023, despite the unexpected hike in the CBR which aimed to restore KES stability against the MPC’s view that the USDKES had overshot its “equilibrium” value. The Shilling lost 2.1% m/m in December 2023 compared to -1.6% m/m in November 2023. In the months ahead, we foresee continued bearishness amidst the renewed uncertainty around the planned repayment of the June 2024 Eurobond.

• NIGERIA
  Fixed Income: Investors submitted total bids worth NGN 4.4 trillion (USD 5.0bn) at the three auctions of Nigerian Treasury Bills in December, representing a 108% m/m surge in demand for NTBs. The Treasury accepted NGN 1.2 trillion (USD 1.3bn), translating into a bid-to-cover ratio of 3.7x and exceeding the offer target by 540%. Primary market yields plummeted in December 2023, partly offsetting the steep climb recorded in November.  We observed a similar movement in the secondary market with the broad-based decline in the Nigerian Interbank Treasury-bill True Yield (NITTY), dragging the 3M NITTY to 5.9% (-109bps m/m) and the 12M NITTY to 14.3% (-282bps).

  Currency: The Naira gave up some of its gains chalked in November 2023 as it lost 3.7% m/m on the parallel market in December 2023. This translates into a 39.2% depreciation against the US Dollar in FY2023 on the parallel market (-48.8% on the official market). Despite a rebound in the second half of December 2023, we opine that the Naira’s appreciation in late December was not anchored on fundamentals as inflation continues to soar amidst the fiscal risks. We thus maintain our bearish outlook on the Naira in 1H2024.