West African Monetary Union (UMOA) countries collectively raised CFA1,590 billion ($2.58 billion) in the public securities auction market during the first quarter of 2024, according to data from UMOA-Titres. This marks a 31% increase compared to the CFA1,213 billion raised in Q1 2023.

Investor interest in these securities appears robust, with a subscription rate reaching 172%, a notable rebound from last year's 107.5% during the same period, which was overshadowed by a liquidity crisis in the banking sector. Although these results are lower than the 237% recorded two years ago, they signal a market recovery.

Within this monetary union, Côte d'Ivoire stands out, having successfully raised CFA674 billion, 42% of the total volume of securities issuances over the period under review. Togo followed with CFA256 billion, despite its smaller economy than Mali and Burkina Faso, which raised CFA194 billion and CFA162 billion respectively. Senegal also performed well, raising CFA198 billion, despite the pre-electoral crisis experienced in the country.

The maturity profile of the issued securities shows a preference for short-term financing, with 34% of the total volume concentrated on 12-month maturities. Medium-term commitments, such as three-year bonds, constitute the second most preferred category, representing 23% of the volume, followed by bonds with 3 and 6-month maturities.

https://www.agenceecofin.com/images/2024/1-mobilisation.png

The heightened interest of regional investors in the sovereign bond market is the result of a return of confidence and improved bank liquidity. However, the balance remains delicate, and projections are cautious, particularly in a context where central bank policy rates could still increase. "Nothing can be ruled out," said a market specialist.

"The liquidity crisis has made banks cautious; the problem has not been fully resolved, so we are adopting a wait-and-see strategy. We prefer short maturities, especially as political tensions in the sub-region could escalate rapidly. With discussions on the departure of certain ECOWAS countries, we prefer to keep our risk exposure to a minimum for now," he explained.

Despite the increase in liquidity available for refinancing, which has somewhat eased this tension, the central bank's weekly refinancing rate has soared since December 2023, from 3.2% to 5.5% in the early part of this year. "The central bank is tightening the screws; it urges us to find financing through our traditional channels," said a financier from a Togolese bank.

Yields are expected to remain above 7% for 3-year bonds in Q2

Since the beginning of 2023, bond yields have already risen sharply due to multiple increases in policy rates and liquidity conditions. The rise in refinancing costs, combined with an unstable political climate in Mali and Burkina Faso, has further strengthened this upward trend. The average yield on three-year bonds increased from 7.94% to 8.17% for WAEMU, while Côte d'Ivoire saw its yields rise from 7.25% to 7.40% on the same maturity. Faced with these conditions, countries like Benin have reduced their presence in the market, issuing only a few securities occasionally.

Analysts forecast that even if there is a stabilization of policy rates during the second quarter of 2024, government bond yields should remain above 7%.

"The rates demanded by investors reflect the need for banks to maintain a spread between their financing costs and the returns on their investments. This gap has narrowed over the past few months," indicated our source.

For the second quarter of 2024, states plan to raise CFA1,985 billion, including CFA920 billion in Treasury bills and CFA1,065 billion in Treasury bonds.