Gov’t aims to drive down interest rates on Treasury Bills to 15%
Investor demand for Ghana’s treasury bills (T-bills) surged in February, reaching a three-year high, according to recent reports. Total bids for the month amounted to GH¢13.51bn, up 46% from the previous month. The high appetite for T-bills is largely attributed to market uncertainties and limited investment options, as well as attractive yield levels. Investors have flocked to T-bills since Q4 2022, when they were exempted from the Domestic Debt Exchange Programme (DDEP), leading to an increase in demand for treasury bills.
Despite the increased demand for T-bills, yields on the bills continued to decline for the third consecutive month. The 91-day bill fell 35.55% (-16bps m/m), while the 182-day and 364-day bills both dropped to 34.21% (-155bps m/m and -160bps m/m respectively). However, experts at Apakan Securities, an investment advisory firm, predict that yields will continue to decline in the coming months due to growing demand for T-bills.
The government is attempting to drive down the interest rates of key money market instruments, particularly treasury bills across the 91, 182 and 364-day tenor, to as low as 15%. This cost-cutting measure is an aggressive move aimed at reducing the cost of borrowing by taking advantage of the high demand environment for short-term maturities. In the most recent auction on 3 March, the government rejected all bids for the short-term instruments, even as the rate for the shortest-tenor bill jumped from 12.52% at the beginning of last year to 35.66% a year later.
“The strong demand for treasury bills and the rising cost of government debt resulted in a drastic decline in yields [as the government rescheduled the auction after rejecting all the bids tendered], dreading that increased borrowing costs would exacerbate its financial difficulties,” said Apakan Securities. Official data shows that the interest rate for the benchmark security has tumbled to 24.16% following the last auction session on 7 March 2023. The government was able to lower the cost of its treasury bills, resulting in an oversubscription of about 121.6%, and generating GH¢6.15bn in revenue from the latest auction. However, the government only accepted GH¢4.52bn of the bids, which mainly came from banks. The treasury was seeking to raise GH¢2.78bn from the short tenors to refinance imminent maturities worth GH¢2.55bn.
During the last two weeks’ auctions, the Bank of Ghana reported that the government reduced the pricing of the 91-day T-bills from 35% to a yield of 24.16%, while the 182-day and 364-day bills were sold at 26.55% and 27.54%, respectively. The results showed that the 91-day T-bill received bids worth GH¢2.73bn, but the government accepted only GH¢1.16bn. Similarly, for the 182-day bills, the bids tendered were estimated at GH¢1.526bn; however, the government accepted only GH¢1.16bn. For the 364-day bill, the bids tendered were valued at GH¢1.886bn, with the government accepting only GH¢1.882bn.
“We reckon the current relatively high interest costs do not factor in the government’s medium-term Debt Sustainability Analysis (DSA), prompting the treasury to take steps to ‘force’ interest rates down at this auction. Due to limited market access, the government has been actively tapping the treasury bill market – its only market window currently – to refinance maturing obligations and also
