After eight consecutive weeks of undersubscription in Ghana’s Treasury Bill (T-Bill) market, the government has finally broken the cycle, raising GHS 5.52 billion in its latest auction.

This amount surpassed the GHS 5.4 billion target set by the government, marking the first time since July that it has achieved an oversubscription.

Mr. Isaac Kwasi Mensah, a Financial Analyst and Portfolio Manager at SIC Financial Services Limited, in an interview with the Vaultz News noted that the modest oversubscription of GHS 128 million (2.37%) represents a significant turnaround, pointing to a rebound in investor confidence as the key driver behind this success.

“The consistent undersubscription of T-Bills in the past eight weeks reflected weak investor demand and growing market skepticism regarding government debt instruments. Various macroeconomic factors had dampened interest in short-term government securities. However, the latest auction results demonstrate that these concerns may have eased, at least temporarily, as investor confidence begins to recover.”

The Role of Market Sentiment

Mr Kwasi Mensah iterated that market sentiment has played a crucial role in the turnaround of the government’s T-Bill auction performance. He stated that several factors may have contributed to this improved sentiment.

“One potential contributor to the positive shift in sentiment is Ghana’s ongoing engagement with the International Monetary Fund (IMF). The government secured a $3 billion bailout from the IMF in May 2023, which included commitments to fiscal reforms and economic stabilization measures.

“The IMF program likely reassured investors that the government is taking steps to improve its financial position, thereby reducing the risk of default on its debt obligations.”
Mr. Isaac Kwasi Mensah

Additionally, the analyst opined that the government may have taken other steps to enhance liquidity in the market, such as adjusting its borrowing strategy and ensuring that investors have sufficient access to short-term debt instruments. These actions, combined with rising yields, likely played a role in the rebound in investor confidence.

Mr Kwasi Mensah highlighted that global economic conditions also influence local investor behavior, and recent trends in international markets may have contributed to the success of the T-Bill auction. “With global markets experiencing increased volatility due to geopolitical tensions, inflation concerns, and tightening monetary policies, many investors have shifted towards safer assets, including government securities”.

The analyst noted that for emerging markets like Ghana, government debt instruments often offer higher yields than those available in developed markets, making them an attractive option for foreign investors seeking better returns. The combination of rising yields and favorable global conditions may have encouraged both local and foreign investors to participate more actively in the latest T-Bill auction.

Rising Yields Likely Affects Demand

Mr Kwasi Mensah also credited the renewed interest in T-Bills to rising yields. According to him, yields on government debt instruments have been edging upwards in recent weeks, making them more attractive to both institutional and retail investors.

“If you look at the results of the auction, you will realize that the latest auction saw a slight increase in yields across all tenors, which may have played a crucial role in encouraging greater participation. The yields on Treasury Bills in the latest auction increased across the 91-day, 182-day, and 364-day tenors, offering investors higher returns on their investments.”
Mr. Isaac Kwasi Mensah

Meanwhile, the 91-day bill saw a slight increase of 0.01%, bringing its yield to 24.91%. The 182-day bill rose by 0.02%, reaching 26.80%. The 364-day bill experienced the most significant increase, rising by 0.16% to 28.07%.

Mr Kwasi Mensah explained that these incremental increases in yields, though modest, provided investors with a more attractive risk-reward proposition.

The analyst indicated that in times of economic uncertainty, investors often seek higher returns to compensate for the perceived risk of lending to governments with fiscal challenges. “By offering higher yields, the government was able to restore some of the lost confidence in its short-term securities, leading to a stronger response from the market,” he said.

Strong Demand for the 91-Day Bill

Investor interest in the latest auction was heavily skewed towards the 91-day bill, which accounted for the majority of bids. Out of the total GHS 5.52 billion raised, GHS 4.68 billion was allocated to the 91-day bill, reflecting its popularity among investors seeking short-term exposure. The 182-day bill received GHS 594 million in bids, while the 364-day bill lagged behind with GHS 245 million.

The analyst explained that the preference for the 91-day bill is likely driven by its lower maturity risk compared to longer-term instruments. “In a market environment characterized by uncertainty, short-term investments offer more flexibility and liquidity, making them more appealing to risk-averse investors”.

“The increased demand for the 91-day bill indicates that while investor confidence is improving, many are still cautious about locking their capital into longer-term securities.”
Mr. Isaac Kwasi Mensah

Meanwhile, in the next auction, the government aims to raise GHS 5.88 billion in its next Treasury Bill issuance, again focusing on the 91-day, 182-day, and 364-day maturities, seeking to capitalize on continued investor interest.

While the results of this auction are encouraging, sustained investor interest will depend on the government’s ability to maintain fiscal discipline, implement meaningful reforms, and continue offering competitive yields.

As the government works to sail pass the ongoing economic challenges, it must ensure that it keeps investor confidence high to maintain a stable and functioning debt market.