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drop in gains in perspective for investments in debt securities issued by governments

(Ecofin Agency) – Public debt securities have become a source of income for financial investors in the WAEMU. The Central Bank of the sub-region, however, forecasts a decline in issues in value. Coupled with inflation and lower rates, this will make less net income.

Institutions that invest in debt securities (Treasury bills and bonds) issued by the States of the West African Economic and Monetary Union (UEMOA) will have fewer opportunities this year 2021, to generate income in this segment activities.

In its latest monetary policy report made public on September 22, the BCEAO, the central bank common to this sub-region, indicates that at the end of 2021, there could ultimately be 6,895.7 billion FCFA ($ 12.3 billion) of public securities issued, if the various timetables are respected. This will be 34.2% less than in 2020.

Already during the first half of 2021, the total amount of gross issues of securities on the regional public debt market amounted to 4,101.0 billion, down 498.1 billion or 10.8% compared to the first half of 2020. One of the probable reasons for this situation is that the main WAEMU borrowers (Côte d’Ivoire and Senegal) have resorted to the international debt market during the period. Also, the Monetary Union States have started to favor long loans which give them more flexibility and budgetary room for maneuver.

This expected drop in government securities issues goes hand in hand with a drop in average yields, both on Treasury bills (securities redeemable at less than 12 months) and Treasury bonds (maturity of more than 12 months). In the first case, we go from 3.6% at the end of June 2020 to 3.2% in 2021, and in the second case, the returns have gone from 6.3% to 5.8%. Finally, in addition to the fall in the value of securities issued and yields, investors will have to take into account the rise in prices within the WAEMU.

From an economic point of view, the level of inflation can reduce the gains on investments with fixed yields such as long-maturity government securities. ” This increase in the rate of price growth is mainly attributable to the increase in food prices ”, explains the BCEAO. It should be remembered, however, that in Côte d’Ivoire, one of the leading issuers of government securities within the WAEMU, this inflation has already reached 4.4% at the end of August, according to the local institution. in charge of statistics.

Not all investors experience setbacks the same way. In this downturn, banks continued to increase their outstanding public securities portfolios. At the end of June 2021, it stood at 14,440 billion FCFA, i.e. 2,546.5 billion FCFA more than in 2020. The question now is whether this increase in volume will be sufficient to offset the drop in rates and the increase in inflation on net interest earnings.

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