Treasury yields halt decline, signaling potential reversal of cost-cutting measures
Ghana’s Treasury yields have halted their decline across the short-term spectrum, indicating a potential reversal of the government’s cost-cutting move to keep yields at around 15% for the 91-day T-bill, amidst efforts by the Bank of Ghana (BoG) to tighten liquidity.
At its March 2023 Monetary Policy Committee (MPC) meeting, the BoG increased the policy rate by 150 basis points to 29.5%, while the cash reserve requirement was hiked to 14%.
Treasury yields saw a marginal increase last week, as demand weakened following nine consecutive weeks of robust auction performance with yields on the decline. This marked the second successive week of yield rises for T-bills.
During the auction that took place on 3 April 2023, the 91-day bill saw an increase of 50 basis points to 19.39%, while the 182-day bill surged by 42 basis points to 21.86%. Despite the yield rise, investors tendered an amount of GH¢1.62bn between the 91- and 182-day bills compared to a target size of GH¢1.34bn, indicating an oversubscription of 21% of the target size. The Treasury accepted and allotted GH¢1.60bn to cover a sum of GH¢1.28bn due this week, resulting in a maturity cover of 1.25x.
However, prior to the last auction that was settled on 3 April 2023, the market had signalled dissatisfaction with yields on the short-term bills, leading to a downturn in demand for T-bills after nine consecutive weeks of oversubscription, as the Treasury recorded under-subscription of GH¢2.44bn, 24% short of the GH¢3.21bn issuance target.
The higher offer target relative to the refinancing obligation for the week set the stage for a tilted nominal higher yield, distorting the yield compression strategy that started in March 2023.
The relatively lower demand during the auction on 24 March 2023 induced an increase in the 91- and 182-day yields. The 91-day yield rose to 18.88%, up by 35 basis points week on week, while the yield on the 182-day maturity saw a 17 basis point week-on-week increase to 21.44%. However, the 364-day bill declined by 116 basis points since its last issue, clearing at a weighted average yield of 25.66%.
With GH¢1.68bn due across the 91-to-364-day bill next week, the Treasury intends to raise GH¢1.77bn to refinance its maturity value.
Apakan Securities has observed that demand for Treasury bills lost its momentum in the past week on the back of unattractive yields, and expects yields to continue their upward trajectory in the coming week.
“We expect yields to continue their upward trajectory this week, albeit at a moderate pace to attract investors as Treasury bills remain one of the key avenues for the government in financing its budget deficit,” it stated.
Secondary market activity last week was uninspiring, with total trading volumes tumbling to GH¢62.31m from GH¢299.58m the previous week.
Apakan Securities suggests that market participants were less active last week due to the unexpected policy rate hike of 150bps to 29.50%. The central bank’s decision to slam the brakes on rate increases – although the local currency remains relatively stable and headline inflation dropped marginally in the first two months of 2023 – surprised the market.
The policy rate increase resulted in the BoG issuing its 14-day and 52-day bills at 29.50% and 30.25% respectively last week.
