Not even the risk of debt restructuring on government securities could deter Ghanaians as investors at the short end of the market once again, overwhelmingly patronized government of Ghana’s treasury bills in the just ended auction held by the Bank of Ghana (BoG).
While the latest auction T-bills auction results beat the expectation of many investment analyst, the results signalled the robust investor participation in the short end of the market. In all, the government successfully raised a total of GH¢2.13 billion, surpassing the initial offer target by an impressive 20 per cent.
According to the data compiled by the research department of GCB Capital, GCB Capital Research, the government accepted all bids tendered at the auctions, exceeding not only the auction target but also the refinancing obligation due on July 17, 2023, by a significant 27%. This outcome underscores the strong market demand for T-bills, showcasing investor confidence in the country’s debt instruments.
That notwithstanding, the auctions witnessed an increase in clearing yields, which determine the interest rates on the T-bills. The average yield for the 91-day T-bill climbed by 39 basis points (bps) to settle at 24.69%, while the 182-day T-bill cleared at 26.41%, representing a 38 bps rise.
This upward movement in yields indicates a higher cost of borrowing for the Government through T-bill issuance. Investors demanded greater returns to offset perceived risks, possibly driven by concerns surrounding inflationary pressures or the overall macroeconomic stability in the country.
Robust Investor Interest and Confidence
While the auctions’ strong results highlight robust investor interest and confidence, the concurrent rise in clearing yields suggests a cautious sentiment among investors. Monitoring yield fluctuations and investor demand will be crucial in understanding market dynamics and gauging investor sentiment in Ghana’s fixed-income market.
A surge in inflation has forced the central bank to raise rates sharply this year, increasing domestic borrowing costs in the process. Ghana has long been classified by the World Bank and International Monetary Fund (IMF) as among the countries at high risk of debt distress
However, inasmuch as the government is raising money to finance its developmental projects and other pressing needs, the cost of borrowing is too high which is a real problem to the economy, owing to the unsustainable debt loophole the country currently finds itself.
Interest rates on Ghanaian Treasury bills (T-bills) have experienced an upward trajectory since plummeting to around 18 per cent in March 2023, down from a high of 35 per cent. This sudden surge has sparked apprehensions about a potential restructuring of short-term securities.
This was echoed by the Fitch, an international Credit rating agency, which warned Ghana over the rising interest costs on its domestic debt, even after securing a programme with the International Monetary Fund (IMF).
As the government moves forward, effectively managing investor expectations, monitoring inflation, and maintaining macroeconomic stability will be critical factors in sustaining investor confidence and ensuring the continued success of T-bill auctions.
Despite these challenging conditions on the international capital market, it is always advisable for government to administratively structure its funding sources to take advantage of available opportunities whenever the risks abate and the outlook becomes favourable.
In the near-term, the dependence on the Treasury in the money market will continue unabated. This is because the government no longer has access to the international market and is without an active primary bond market. Also, analysts expect trading in T-bills will continue dominating the secondary fixed-income market for the rest of the year 2023 amidst the lack of price action on the bond market.