Despite tight liquidity, bond market activity strengthens

By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU

The Ghana Fixed Income Market (GFIM) has recorded increased trading activity this year despite tight liquidity conditions resulting from the Bank of Ghana’s (BoG) liquidity absorption measures.

The trend, analysts say, points to deeper market activity, growing investor sophistication, and more active financial intermediation in a restrictive monetary environment.

Data from the Black Star Group Markets Update –for October 2025 show that total secondary market trading volume for fixed-income securities climbed to about GH¢29.1 billion in October, up 4.7% month-on-month, and a marked improvement over the the 12-month average of GH¢20.44 billion.

Treasury bills accounted for GH¢11 billion of trades, as turnover was sustained even as the central bank continued to absorb excess liquidity from the financial system.  Cumulative trade volumes on the secondary market of treasury bills trading amounted to GH¢102.6 billion.

Since the start of the past year, the BoG has sterilised GH¢307.8 billion in excess liquidity to contain inflation, draining substantial funds from the interbank and money markets. Yet, instead of weakening trading activity, the data suggest the liquidity squeeze has pushed investors toward more active portfolio rebalancing, especially in short-term instruments.

The central bank’s tightening drive has helped moderate inflation to 8 percent in October 2025, down from over 12 percent a year earlier, while money supply growth (M2 ) slowed to 16.6 percent as of August.

The restrictive stance, however, limited liquidity in the primary market, where the government missed several auction targets. Cumulatively, Treasury auctions have fallen short by GH¢17.45 billion this year, indicating how BoG’s liquidity absorption and fiscal funding needs have competed for the same pool of funds.

Despite this, investor activity on the secondary market has remained buoyant. Market participants have shifted focus from long-term bonds to shorter-dated securities such as the 91-day Treasury bill, which continued to see strong demand. Total accepted bids in October amounted to GH¢ 21.2 billion, with investors favouring flexibility and quicker rollover options.

Market participants have shown a preference for the shorter end of the curve. Investors are staying active, by avoiding duration risk. Consequently, secondary trading volumes remain high, funds are circulating faster.

This shift is also reflected in the flattening of the yield curve. By October, yields on medium- and long-term government bonds converged near 16 percent, showing stable expectations for inflation and policy rates. Analysts say the convergence reflects growing confidence in the BoG’s inflation management and improved price discovery in the bond market.

The secondary market’s strong performance also underscores the role of large institutional players — including pension funds, mutual funds, and insurance firms — whose trading strategies have supported liquidity even during periods of monetary tightening. These institutions have rotated between maturities to optimise yield while managing liquidity constraints.

Meanwhile, the government’s short-term borrowing costs have edged up slightly, with the 91-day bill yielding 10.8 percent, 182-day at 12.5 percent, and 364-day at 13.0 percent. Market watchers say the modest rise in yields reflects selective investor participation rather than a loss of confidence, as most participants continue to rely on secondary trades for cash flow management.

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