Macro Analysis /

Is it time to go long Ghanaian Eurobonds? US Treasury curve temporarily inverts 

  • Forex: Ugandan Shilling reverses its gains from the start of the year as headwinds mount

  • Fixed Income: Ghanaian Eurobonds rally after lawmakers pass tax law needed to reduce the country’s budget deficit

  • Macroeconomic: Kenya leaves interest rates on hold, inflation expectations remain contained

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
30 March 2022
Published byETM Analytics


As the safe-haven bid dissipates, the USD loses some impetus to strengthen amid indications that Russia will reduce its military presence around Kyiv. This marks a shift in the war that may be the result of the impressive resilience shown by Ukraine in protecting its capital. However, the eastern part of Ukraine remains contested, and Russia will want this war to end with a clear victory that it can sell to the Russian electorate to make their sacrifices seem worthwhile.

However, while progress is made on one front, the flattening of the US yield curve highlights the consequences of the Fed's aggressive stance on inflation on the other. The 10yr vs 2yr spread has now flattened to just 2bp and looks set to invert. Although the Fed will play down the flattening and the risk of recession, historical analysis shows that it is a good predictor of impending recessions. Investors are gradually positioning for the risk that the Fed's catch-up policy will quickly put the brakes on US economic growth and result in a reversal in the economic cycle that would necessitate monetary policy easing. It is the reason currency investors might look through the current phase of monetary tightening and start to price in the probability that the monetary policy divergence between the US and its major trading partners will not last long.

In the commodity market, aluminium took it on the chin yesterday, shedding 5% to close at $3436.00/tonne. This came as investors priced for a paring back of tensions in Eastern Europe which would potentially in time increase the availability of the metal as energy prices moderated and supply routes opened up again. It is still early days, and we would be cautious against taking all of the news flow at face value. In other news, the London Metal Exchange has stated categorically that is has no plans to ban Russian metals from the exchange.


Mozambique: Mozambique will become the latest Southern African country to decide on its interest rates. Expectations are that single-digit inflation will likely see policymakers keep rates unchanged as they monitor the impact of global developments. That said, if imported inflation builds, policymakers may have to adopt a more hawkish approach to their monetary policy stance.

Egypt: The Egyptian Cabinet announced yesterday that Qatar plans to invest $5bn in the country in the coming period. The two countries have agreed to coordinate investment plans. However, no timetable was given for the investments. The investment pledge is the latest sign of support from the Gulf as the Egyptian economy is hit hard by the developments in Ukraine. The Qatari agreement comes after Abu Dhabi wealth fund ADQ made a roughly $2bn deal to buy Egyptian state-owned stakes in publicly listed companies earlier this month. It was one of the first tangible signs of fresh Gulf support for Egypt to help it ride out the crisis.

Democratic Republic of Congo: The Eastern African Bloc has become a $250bn market after the DRC joined. The DRC became the EAC’s seventh member after heads of states agreed to its request to join the $193.7bn group. The bloc’s common market, which groups 177mn people, provides for free movement of goods, people, labour, services, and capital among partner states Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda. Sub-Saharan Africa’s largest country by landmass, Congo, will provide a corridor for East African nations along the Indian Ocean coastline to connect with the Atlantic Ocean, opening a window to increased intra-African trade. The DRC is the largest source of cobalt and Africa’s biggest miner of copper, has a population of about 90mn people and a GDP of $54.8bn.

Rwanda: Speaking yesterday, central bank governor John Rwangombwa forecast Rwanda’s domestic economic recovery to continue at a slower pace than earlier projected due to developments in Ukraine. Rwanda imports 60% of its wheat from Russia and Ukraine and 64% of fertilizers from Russia. According to the governor, “the Russia-Ukraine war is bringing more uncertainty, posing an upside risk for the country’s inflation and additional pressures on the external sector.” Note the central bank had forecast growth of 7.2% this year, but that is now unlikely, and new projections will be issued at a date yet to be published.

Tanzania: As the world searches for alternative sources of fuel to diversify from being dependent on Russia, Tanzania projects investments into its liquified natural gas project to rise by $10bn. According to President Samia Suluhu Hassan, the second phase of negotiations with a group of companies led by Equinor ASA and Shell Plc for building the long-delayed LNG terminal are expected to conclude by June. Hassan revived the talks for the project initially estimated at $30bn last year after they stalled under former President John Magufuli. President Hassan needs to accelerate the liquefied natural gas project. The country has an estimated 57 trillion cubic feet of gas reserves. Reports citing sources close to the matter suggest Tanzania may allow a deal for the LNG project to produce 15mn tons a year, 50% higher than the government’s earlier preference, given there is a market. That may reduce the project’s lifetime from the initial estimate of 30 years.

Botswana: The release of the 4th QTR 2021 Botswana GDP figure was not forthcoming yesterday. Bloomberg has removed it from its calendar and Statistics Botswana does not make reference to the release in either its latest releases section or the upcoming releases on its website. It is unclear why there is a delay, but there have been delays of data releases in the past as a result of rebasing work.

Forex: Ugandan Shilling reverses its gains from the start of the year as headwinds mount

The Ugandan Shilling has continued to weaken in March and is underperforming its regional peers after outperforming its peers at the start of the year. While the UGX was relatively stable yesterday, supported by some typical end-of-month remittance inflows, the currency has lost around 1.51% on a month-to-date basis. This makes it the worst-performing East African currency against the USD. Furthermore, the UGX is ranked third from the bottom among African currencies, only bettering the performance of the Egyptian Pound and Ghanaian Cedi.

The UGX depreciation has come on the back of dollar demand from importers, especially oil outpacing inflows from commodity exporters and a rotation out local currency treasury bonds, resulting from subdued global risk appetite for most of this month amid the Ukraine war. Therefore, the UGX is on course to record its second straight monthly loss, barring any surprises. The International Monetary Fund has said that greater exchange rate flexibility would be needed to help absorb external shocks and preserve external buffers in Uganda.

Looking ahead, the UGX is set to remain on the back foot amid several headwinds, including the traditional dividends season in April and tightening global financial conditions. Regarding the latter, the IMF has suggested that FX interventions should be limited to smoothing large foreign exchange fluctuations and maintaining adequate reserve buffers as non-resident holdings now represent a quarter of all foreign exchange reserves.

Fixed Income: Ghanaian Eurobonds rally after lawmakers pass tax law needed to reduce the country’s budget deficit

Tuesday was a historic day for Ghana as lawmakers finally approved the much talked about tox on electronic payments, a key tax reform needed by the government to lower its budget shortfall. Although the e-levy, a tax on electronic payments, was cut from an initially proposed 1.75% to 1.5%, the passing of the new tax law provided some much-needed evidence for investors that the government is indeed committed to resolving the country’s fiscal issues.

The passing of the e-levy builds on other measures announced by Finance Minister Ofori-Atta last week, which include spending cuts to help ensure that the government is able to meet its budget deficit target of 7.4% of GDP in the current fiscal year from a projected 12.1% last year. The passing of the e-levy saw Ghanaian Eurobonds extend their recovery yesterday, with the yield on the 2026 tenor, for instance, shedding 49bps on the session to close the day at more than a 1-month low of 14.56%, according to Bloomberg data.

Yesterday’s rally in Ghanaian Eurobonds also came on the back of some positive external developments, including optimism about easing tensions between Russia and Ukraine, which resulted in a marked improvement in global risk appetite and a drop in international oil prices which helped ease inflation concerns.

The big question now is whether the recovery in Ghanaian Eurobonds will be sustained or whether investors will continue to demand a massive premium for holding Ghanaian debt. The answer to this rests on whether the market is convinced that the government is committed to reining in the country’s inflated debt pile and rolling out much-needed fiscal reforms to put the country back on a sustainable debt path. While the measures announced by the Finance Minister over the past week are encouraging, traders are not convinced that the measures are enough to resolve Ghana’s fiscal issues. Moreover, concerns over the credibility of the country’s fiscal targets remain.

Therefore, we could see yields fall further in the sessions ahead, particularly if developments on the global front remain positive. However, we expect a significant fiscal premium to remain baked in as fiscal fears linger. That said, should the government continue to push ahead with more reforms and regain investors' trust, there is room for a significant correction in Ghanaian Eurobonds, which traders wouldn’t want to miss out on. For now, we are cautiously optimistic about Ghanaian bonds but caution investors from turning overly bullish just yet.

Macroeconomic: Kenya leaves interest rates on hold, inflation expectations remain contained

As expected, the Central Bank of Kenya decided to leave the Central Bank Rate on hold at 7.00%, its lowest level in more than a decade. The Monetary Policy Committee said in its statement accompanying the rate decision that inflation expectations remain anchored within the target range.

The CBE highlighted that headline inflation slowed to 5.1% y/y in February due to lower fuel and food prices. The deceleration in consumer price growth was partly a function of government measures to stabilise fuel prices and lower electricity prices. Prices of commodities, particularly oil, wheat, and fertiliser, have risen sharply as a result of supply disruptions, adding to the already elevated global inflationary pressures. The bank said that financial market volatility has increased amid adjustments in monetary policy in advanced economies.

On the growth front, the CBE said that the global economic outlook remains uncertain, reflecting the ongoing Russia-Ukraine conflict, significant uncertainty surrounding policy responses in advanced economies and a spike in Covid cases in China, which has prompted fresh lockdowns. Domestically, the central bank said leading indicators point to a strong performance of the Kenyan economy in the first quarter of 2022, supported by robust activity in construction, information and communication, wholesale and retail trade, transport and storage, and manufacturing sectors. Looking ahead, the central bank said that the economy is expected to remain resilient, supported by a recovery in agriculture and continued strong performance of the services sector despite the downside risks to global growth in 2022.