Ghana Fixed Income Outlook — Reinvestment Risk Replaces Credit Risk

For two years after the domestic debt exchange, the question every Ghanaian fixed income investor asked was about credit: would the government pay, and on what terms. That question has receded. It has been replaced by a quieter one that matters just as much to the eventual outcome, and gets far less attention.

If you hold a 91-day Treasury bill, you are not exposed to much price risk and, at current levels, not much credit risk over that horizon. What you are exposed to is the yield available in ninety days' time. In a falling rate environment, that is a real and compounding cost — and it is invisible on any statement, because nothing about your holding has lost value.

What the curve is telling us#

A flat or inverted short end can mean two very different things. It can mean investors are worried about near-term risk and demanding compensation to lend short. Or it can mean they expect rates to fall and are willing to accept less yield now to avoid reinvesting later at lower levels.

The auction evidence points to the second. Demand for short paper remains strong — bid-to-cover on 91-day tenders has consistently exceeded longer tenors — which is not the pattern you would see if investors were nervous about the short-term credit of the issuer.

The real return is the only number that matters#

Here is the arithmetic that most discussion of Ghanaian Treasury bills skips.

Nominal yield on a short-dated bill

The headline figure

Less: inflation over the holding period

Erodes purchasing power

Less: withholding tax where applicable

Reduces the net receipt

Equals: the real, after-tax return

What actually accrues to you

An investor comparing a high nominal cedi yield with a low nominal dollar yield is not comparing like with like, and the gap between the two is smaller than the headline numbers imply once inflation and currency movement are accounted for. We examine this comparison directly in our Insights piece on cedi and dollar returns.

Duration extension: mostly a trade already made#

The clearest opportunity in this cycle — extending duration before the market had priced the easing — has largely passed. What remains is the residual, and it carries the specific risk that Ghanaian long-dated paper is not reliably liquid. An investor who extends duration and then needs the money before maturity may find the exit price materially worse than the quoted level.

For institutional investors with defined liabilities, the reinvestment question is a matching question, and the flat curve makes matching cheaper than usual in nominal terms.

For individual savers, the practical implication is to compare the real after-tax return on Treasury bills against a bank deposit, and to expect that gap to widen in the government's favour as the easing cycle progresses — because deposit rates in Ghana adjust down slowly.

For businesses holding working capital in Treasury paper, the shortening of available real returns is a reason to revisit whether that balance is doing the job intended for it.

Ghanaian fixed income has moved from a credit problem to a reinvestment problem. That is unambiguously an improvement, but it requires a different question from investors. Not "will I be repaid?" but "what will this money earn next time, and is that still enough after inflation?"

For most holders of short-dated paper, the honest answer is that the returns of the last two years are not the returns of the next two.