The Treasury bill (T-bill) market is anticipated to maintain high yields, even after the Bank of Ghana (BoG) implemented a notable cut in its policy rate.
Recently, the central bank reduced its Monetary Policy Committee benchmark rate from 29 percent to 27 percent.
However, the impact of this reduction on T-bill yields seems limited due to the government’s significant domestic financing needs.
Another factor contributing to the persistently high yields is tight market liquidity. Analysts suggest that the strong demand for domestic financing amid rising price pressures, combined with investors’ absorption of the central bank’s policy change, is likely to sustain elevated yields in the near term.
In its latest market review, Databank commented, “Despite the sharp cut in benchmark rate, we believe that heavy domestic financing needs will keep yields elevated in the coming week”.
Databank also noted that any potential adjustment in the BoG’s 56-day bill yield could lead to a decrease in T-bill yields, although this has yet to occur.
The ongoing increase in T-bill yields highlights the broader challenges the government faces in meeting its weekly auction targets.
Recent auctions have seen a continuous upward trend in yields across various tenors. The 91-day T-bill rose by 63 basis points (bps) to 25.20%, reaching its highest level since October 2023.
Additionally, the 182-day and 364-day bills increased to 26.85 percent and 28.35 percent, reflecting rises of 11 bps and 60 bps, respectively, from the previous week.
This current rate environment marks a significant change from the first half of 2024, when T-bill yields were declining.
At the end of June 2024, the 91-day bill was at 24.87 percent, while the 182-day and 364-day bills were at 26.80 percent and 27.79 percent, respectively. This reversal signifies rising borrowing costs for the government, which is under pressure to secure adequate funding in the domestic market.
According to Apakan Securities, last week’s T-bill auction experienced the steepest undersubscription in five months.
The auction, conducted on Friday, achieved only 64 percent of the government’s ambitious GH¢7.44 billion target.
Investors submitted bids totaling GH¢4.47 billion across all tenors, with the Treasury accepting all to meet maturing obligations of GH¢3 billion. This undersubscription was anticipated, given the historically high target set for that week.
“This is the largest weekly target we’ve seen, and the undersubscription is a clear indication of the financing pressure government is facing,” Apakan Securities stated in its market review.
The auction’s coverage ratios for targets and maturity were 0.64x and 1.61x, respectively, highlighting a significant shortfall in bids against the government’s financing requirements.
This week, the Treasury plans to offer GH¢5.98 billion across the 91-day to 364-day range to cover the maturing face value of GH¢3 billion.
The next T-bill auction is scheduled for Friday, October 4, 2024, and market participants will closely watch whether the government can secure the necessary funds amid ongoing liquidity challenges.
On the secondary market, trading activity declined last week, with total volumes falling by 17.92 percent week-on-week to GH¢349.73 million.
New bonds dominated trading, comprising 99.6 percent of the total volume. Notably, the February 2027 bond, with an 8.35 percent coupon rate, was the most actively traded, making up about 66 percent of the total volume. The February 2028 bond, offering an 8.50 percent coupon rate, also attracted significant interest, clearing at 25.16 percent.
Market observers anticipate continued trading activity following the BoG’s 200 basis points rate cut, which could draw more investor interest toward medium-term papers.
However, the long-term outlook remains uncertain, with analysts highlighting the government’s ongoing domestic financing needs as a critical factor likely to keep T-bill yields elevated in the short term.
