Despite a marginal drop in interest rates and easing inflation- which now enters single digit, investor appetite for Ghana’s short-term debt instruments remains weak, signaling growing market unease.
According to the latest auction results from the Bank of Ghana, the government failed to meet its target for the second consecutive week, underscoring concerns about liquidity, fiscal credibility, and shifting investor sentiment.
In an exclusive interview with The Vaultz News, Mr. Isaac Kwesi Mensah, a market analyst and corporate finance expert at SIC Financial Services Limited (SIC-FSL), shared in-depth insights into the underlying causes of this undersubscription and its potential implications for the broader financial market and fiscal management.
Undersubscription Raises Market Red Flags
The latest Treasury bill auction revealed that the government received GH¢2.59 billion in total bids but accepted GH¢2.57 billion, representing a 30% undersubscription against its target. The 91-day bill dominated investor participation, accounting for over 78% of the bids (GH¢2.028 billion), while the 182-day and 364-day instruments saw weaker demand.
Mr. Mensah described the undersubscription as “a reflection of a shifting market mood,” emphasizing that investors are increasingly cautious about short-term government securities despite improving macroeconomic indicators.
“We are witnessing a clear reallocation of funds into alternative instruments such as Bank of Ghana bills and fixed deposits. This signals waning confidence in government debt securities, especially when compared to the more stable and better-yielding instruments offered by the central bank and commercial banks.”
Mr. Isaac Kwesi Mensah
The trend, he noted, raises concerns about the government’s short-term financing capacity, as Treasury bills remain a critical tool for managing cash flow and refinancing maturing obligations.
Interest Rates and Inflation Decline, But Confidence Still Weakens
Interestingly, the auction results also showed a marginal decline in yields, even as Ghana’s headline inflation continues to fall. The yield on the 91-day bill fell by 3.0 basis points to 10.47%, the 182-day bill slipped to 12.35%, and the 364-day bill declined slightly to 12.87%.
These developments come amid a gradual reduction in inflation, which recently dropped to its lowest level in months — a sign that price stability is improving. However, despite these positive indicators, investors seem unconvinced.
Mr. Mensah explained that the drop in both yields and inflation, while theoretically supportive of cheaper government borrowing, has done little to restore confidence among market participants.
“Normally, falling inflation and lower yields should reignite investor interest in Treasury instruments. But investors are prioritizing safety and return stability over nominal rate changes. They want assurance that the fiscal trajectory is credible, not just temporary relief from inflation.”
Mr. Isaac Kwesi Mensah
He added that some institutional investors may also be adjusting their portfolios in anticipation of future monetary tightening or policy realignments by the Bank of Ghana to maintain inflation within its target band.
Investors Chase High-Yield Alternatives
Mr. Mensah pointed out that investors’ growing preference for Bank of Ghana bills and fixed deposits stems from their relatively higher yields and perceived security.
“BoG bills carry similar sovereign risk as Treasury bills but are viewed as more insulated from fiscal pressures,” he said. “Meanwhile, commercial banks have become more competitive, offering attractive fixed deposit rates to retain liquidity amid slower credit growth.”
This shift, he noted, reflects a “crowding-out effect,” where government instruments lose out to alternative products with higher risk-adjusted returns. The trend could intensify if investor concerns about fiscal discipline and transparency persist.
Fiscal Implications and Market Outlook
The persistent undersubscription poses potential challenges for the government’s fiscal management, particularly as it strives to stabilize the economy under the IMF-supported program. With Treasury bills serving as a key financing tool, shortfalls could compel the government to rely more heavily on central bank financing or external borrowing — both of which have implications for inflation and debt sustainability.
Mr. Mensah cautioned that the Ministry of Finance must act decisively to rebuild confidence in the domestic debt market through policy consistency and transparent fiscal communication.
“The government cannot afford to send the wrong signals to the market,” he said. “Any perception of funding stress or weak demand for Treasury instruments could undermine the credibility of fiscal consolidation efforts.”
He advised that authorities consider modest rate adjustments, expanded retail participation, and improved liquidity management to sustain market interest.
Restoring Investor Confidence
In the intervening time, Mr. Mensah believes that rebuilding investor confidence will depend on a balanced mix of fiscal prudence, macroeconomic stability, and strategic communication.
“Falling inflation and lower yields should be good news. But what the market needs now is assurance that these gains are sustainable. Investors want proof that Ghana’s economic recovery is real, not fragile.”
Mr. Isaac Kwesi Mensah
He emphasized that close coordination between the Bank of Ghana and the Ministry of Finance remains crucial to ensure alignment between monetary and fiscal policies. Without it, liquidity challenges and market distortions could persist. “Stability is built on confidence, and confidence is built on credibility,” he added. “The Treasury must demonstrate discipline, consistency, and transparency to win back the trust of investors.”
Mr. Isaac Kwesi Mensah concluded saying, “The issue is not just about rates or inflation — it’s about trust, predictability, and policy credibility.” Until these fundamentals are restored, the Treasury may continue to face challenges meeting its funding targets, even in an improving economic environment.
