Since the beginning of April, the WAEMU government securities market has been gradually recovering, after the slowdown observed in the first quarter. The dynamic is strengthening with subscription rates rising and institutional investors showing renewed interest. However, those operations are becoming more expensive for governments.   

WAEMU states raised CFAF134.84 billion ($226 million) in the first trading week of May 2023 (May 1-5) on the regional public securities market. The amount is up by  CFAF 9.84 billion compared to the initial CFAF125 billion target. 

The average subscription rate increased to 157.10%, up from the previous week's 132%, indicating a growing interest among investors following the central bank BCEAO's recent mitigation efforts. During that week, Côte d'Ivoire (CFAF 33 billion), Mali (CFAF 30.34 billion), Benin (CFAF 38.5 billion), and Togo (CFAF 33 billion) raised funds through public securities on the market.

Côte d'Ivoire aimed to raise CFAF 30 billion through 91-day securities due to cashflow limitations, which resulted in a subscription rate of 193%. Mali attracted 12 investors in its bid to raise CFAF 30 billion through 182-day, 3-year, and 5-year securities, achieving a subscription rate of 101.31%. Meanwhile, Benin raised CFAF 38.5 billion through 182-day and 3-year securities, with a subscription rate of 144%. Togo raised CFAF 33 billion through 182-day, 364-day, and 3-year securities, with subscription rates of over 190%.

According to the public securities’ promotion agency Umoa-titres, inflation remained stable, at 5.7%, in March 2023, after four consecutive months of decline. Despite that stability, the agency thinks that with major central banks like the European Central Bank (ECB) and the Federal Reserve (Fed) raising their key rates by 0.25 percentage points, the BCEAO can decide to follow the trend and raise rates at its next monetary policy meeting, scheduled for June 2023. Institutional investors showed a 14% increase in participation in the government securities market between the end of December 2022 and April 2023, driven by the rise in yields.

In that context, the WAEMU believes that some investors may be incited to readjust their portfolio to allocate more funds to “fixed-yield assets, such as government securities, which typically offer higher yields when interest rates rise." 

 “Typically, in those cases, investors are concerned that higher interest rates will harm economic growth and credit demand. Some of them are then prompted to move to less risky assets, such as government bonds or cash [markets],” it added. 

Currently, in the market, the yield on short-term securities is around 6% against about 8% for medium-term securities. Umoa-titres thus appeals to authorized public security market intermediaries to encourage their clients to invest in the public securities markets to get the “best possible returns.”  

This trading week (May 8-12), four operations are scheduled to raise a total of CFAF180 billion. Issuing countries are Côte d'Ivoire (CFAF70 billion) Burkina Faso (CFAF30 billion), Niger (CFAF30 billion), and Senegal (CFAF50 billion). 

Fiacre E. Kakpo