Investor interest in short-term government securities is rapidly declining, with Treasury bill (T-bill) auctions falling short of target volumes.
Databank Research has projected a continued trend of under-subscriptions in the weeks ahead, driven primarily by diminishing yields and inflationary pressures that are eroding real returns.
The first auction in July recorded an 11.56% week-on-week undersubscription, signaling waning confidence in short-term instruments. Investors submitted bids totaling GHS 2.96 billion, which fell short of the GHS 3.36 billion target. Despite the shortfall, the Treasury accepted all bids, which adequately covered maturities amounting to GHS 2.24 billion.
Adding to investor caution, the latest auction results saw a continued decline in yields across all T-bill tenors. The 91-day bill dropped by 13 basis points to 14.57%, the 182-day bill declined by 23 basis points to 15.02%, and the 364-day bill saw the steepest drop of 49 basis points to settle at 15.17%.
Databank attributes this decline to what it describes as a “yield compression” phase. With headline inflation currently at 13.7%, the returns from T-bills are offering very little real interest to investors, further dampening demand.
“We Expect Continued Undersubscriptions” – Databank
In its latest market commentary, Databank Research stated.
“We expect continued undersubscriptions in the coming weeks as investors prefer other competitive yield securities over T-bills. With inflation at 13.7%, yield compression is likely to persist as the Treasury prepares to re-enter the local bond market. We believe this timing aligns with their strategy to issue longer-term securities to finance upcoming debt at cost-effective levels.”
Databank Research
This forecast reflects a broader shift in investor sentiment, with market participants increasingly turning to medium- and long-term instruments or alternative assets with higher yields and better inflation-adjusted returns.
To address the challenges in the short-term debt space, the Treasury is expected to return to the local bond market soon. Analysts see this as a strategic pivot toward issuing longer-term securities that offer more attractive risk-return profiles for investors and help the government manage its debt sustainably.
This move aligns with Ghana’s broader fiscal strategy to refinance maturing obligations at a lower cost. By locking in current rates through long-term bonds, the government hopes to avoid the volatility and uncertainty surrounding short-term borrowing instruments.
As the interest in T-bills fades, investors are exploring other avenues such as corporate bonds, real estate investment trusts (REITs), and equities—assets that may offer more favorable returns in the current environment. This shift is expected to intensify if the inflation trajectory remains flat or begins to inch upward again.
With monetary policy likely to remain cautious in the short term, interest rates may not rise fast enough to restore the appeal of short-term government debt. The situation presents a significant challenge for the Treasury, which relies heavily on T-bills to fund short-term obligations.
Outlook: Tough Road Ahead for Short-Term Debt Instruments
The sustained decline in T-bill yields, coupled with inflationary pressures, is creating a difficult landscape for short-term government borrowing. While the Treasury has managed to cover its maturities for now, consistent underperformance in auctions may eventually pressure the government to recalibrate its borrowing mix and raise yields to attract interest.
Databank’s forecast of a prolonged slump in demand should serve as a cautionary signal for policymakers. Without adequate demand in the short-term market, the government may be forced to rely more heavily on long-term borrowing or external sources, both of which come with their own set of risks.
In the weeks ahead, all eyes will be on the government’s next move in the domestic bond market, as well as any monetary policy actions that may influence yield curves. For now, T-bills remain in a vulnerable position—overshadowed by low yields, inflation erosion, and investor disinterest.
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