TIG Post

Tag: T-bill

  • BoG’s rate cut unlikely to lower T-bill yields – Report

    BoG’s rate cut unlikely to lower T-bill yields – Report

    The Treasury bill (T-bill) market is anticipated to maintain high yields, even after the Bank of Ghana (BoG) implemented a notable cut in its policy rate.

    Recently, the central bank reduced its Monetary Policy Committee benchmark rate from 29 percent to 27 percent.
    However, the impact of this reduction on T-bill yields seems limited due to the government’s significant domestic financing needs.

    Another factor contributing to the persistently high yields is tight market liquidity. Analysts suggest that the strong demand for domestic financing amid rising price pressures, combined with investors’ absorption of the central bank’s policy change, is likely to sustain elevated yields in the near term.

    In its latest market review, Databank commented, “Despite the sharp cut in benchmark rate, we believe that heavy domestic financing needs will keep yields elevated in the coming week”.

    Databank also noted that any potential adjustment in the BoG’s 56-day bill yield could lead to a decrease in T-bill yields, although this has yet to occur.

    The ongoing increase in T-bill yields highlights the broader challenges the government faces in meeting its weekly auction targets.

    Recent auctions have seen a continuous upward trend in yields across various tenors. The 91-day T-bill rose by 63 basis points (bps) to 25.20%, reaching its highest level since October 2023.

    Additionally, the 182-day and 364-day bills increased to 26.85 percent and 28.35 percent, reflecting rises of 11 bps and 60 bps, respectively, from the previous week.

    This current rate environment marks a significant change from the first half of 2024, when T-bill yields were declining.

    At the end of June 2024, the 91-day bill was at 24.87 percent, while the 182-day and 364-day bills were at 26.80 percent and 27.79 percent, respectively. This reversal signifies rising borrowing costs for the government, which is under pressure to secure adequate funding in the domestic market.

    According to Apakan Securities, last week’s T-bill auction experienced the steepest undersubscription in five months.

    The auction, conducted on Friday, achieved only 64 percent of the government’s ambitious GH¢7.44 billion target.

    Investors submitted bids totaling GH¢4.47 billion across all tenors, with the Treasury accepting all to meet maturing obligations of GH¢3 billion. This undersubscription was anticipated, given the historically high target set for that week.

    “This is the largest weekly target we’ve seen, and the undersubscription is a clear indication of the financing pressure government is facing,” Apakan Securities stated in its market review.

    The auction’s coverage ratios for targets and maturity were 0.64x and 1.61x, respectively, highlighting a significant shortfall in bids against the government’s financing requirements.

    This week, the Treasury plans to offer GH¢5.98 billion across the 91-day to 364-day range to cover the maturing face value of GH¢3 billion.

    The next T-bill auction is scheduled for Friday, October 4, 2024, and market participants will closely watch whether the government can secure the necessary funds amid ongoing liquidity challenges.

    On the secondary market, trading activity declined last week, with total volumes falling by 17.92 percent week-on-week to GH¢349.73 million.

    New bonds dominated trading, comprising 99.6 percent of the total volume. Notably, the February 2027 bond, with an 8.35 percent coupon rate, was the most actively traded, making up about 66 percent of the total volume. The February 2028 bond, offering an 8.50 percent coupon rate, also attracted significant interest, clearing at 25.16 percent.

    Market observers anticipate continued trading activity following the BoG’s 200 basis points rate cut, which could draw more investor interest toward medium-term papers.

    However, the long-term outlook remains uncertain, with analysts highlighting the government’s ongoing domestic financing needs as a critical factor likely to keep T-bill yields elevated in the short term.

  • Govt achieves first T-Bill oversubscription in 10 weeks, increases 91-day bill yield

    Govt achieves first T-Bill oversubscription in 10 weeks, increases 91-day bill yield

    Government has for the first time in 10 weeks, seen an oversubscription in its treasury bill auction, though it came at a higher cost for the 91-day bill, which attracted bids worth GH¢4.689 billion before reaching its target.

    According to data from the Bank of Ghana, the government secured GH¢5.529 billion from all bids submitted, exceeding its target by 2.40%. All the bids were accepted.

    The majority of the bids, amounting to GH¢4.689 billion (roughly 84% of the total), were for the 91-day bill. The 182-day bill attracted about GH¢594 million in bids, while the 364-day bill received GH¢245.74 million.

    Interest rates showed a mixed performance across the board. The yield on the 91-day bill rose slightly to 24.91%, compared to the previous week’s 24.90%.

    In contrast, the 182-day bill rate dipped by 2 basis points to 26.78%, while the 364-day bill saw a slight decrease to 28.07% from the prior week’s 27.91%.

    With inflation easing slightly last week, there’s potential for interest rates to decrease, though the adjustment is likely to be gradual.

    SECURITIESBIDS TENDERED (GH¢)BIDS ACCEPTED (GH¢)
    91 Day Bill4.689 billion4.689 billion
    182 Day Bill594.37 million594.37 million
    364 Day Bill245.74 million245.74 million
       
    Total5.529 billion5.529 billion
    Target5.400 billion 

  • T-bill yields continue to decline due to strong investor interest

    T-bill yields continue to decline due to strong investor interest

    Yields on Treasury bills (T-bills) have seen a consistent decline in the latest auction, marking the fifth consecutive week of decreases.

    This trend, driven by strong investor demand, which reached 58 percent oversubscription last week, is positive news for the government as it lowers its borrowing costs.

    During the auction, yields notably decreased across the board. The 91-day and 182-day bills fell to 28.30 percent (-0.29 percent) and 30.79 percent (-0.3 percent), respectively, while the 364-day yield saw the largest drop, closing at 31.40 percent (-0.4 percent).

    The auction aimed to raise GH¢2.86 billion but received bids worth GH¢4.53 billion for short-term bills.

    All bids were accepted, covering the current debt of GH¢2.67 billion, resulting in a coverage ratio of 1.70x.

    Market analysis by Apakan Securities suggests that investors are hedging against reinvestment risk amid falling yields.

    There was a notable shift towards the 364-day bill, indicating increased demand for longer-term securities, although the 91-day bill remains the most preferred option.

    Investors are strategically seeking opportunities to secure higher returns amidst declining T-bill rates, as evidenced by the surge in oversubscription in recent weeks.

    Apakan Securities emphasises that this trend highlights investors’ deliberate efforts to maximise returns despite the decreasing rates.

    Investors are taking proactive steps to make the most of current market conditions and secure good returns. This trend of increased interest in T-bills is expected to continue as yields keep falling, according to Databank.

    Last month, the Treasury raised GH¢22.06 billion, exceeding its target by about 35 percent compared to the previous month. Databank expects this trend to continue in February 2024, driven by an estimated cash coupon payment of about GH¢4.3 billion on new bonds.

    Yields are predicted to decrease further, following the trend of lower inflation rates and a 100 basis points cut in the key monetary policy rate during the January 2024 Monetary Policy Committee meeting.

    This week, the Treasury aims to raise GH¢4.59 billion to pay off maturing debt totaling GH¢4.23 billion. Despite being the highest target size in nine weeks, strong market demand suggests the Treasury is likely to meet its target in the upcoming auction, with further decreases in yields expected.

    Databank forecasts that over 50 percent of the GH¢61.9 billion budget deficit in 2024 will be covered through T-bills. The estimated issuance of T-bills for the fiscal year is expected to reach around GH¢180 billion, marking a significant 21 percent increase compared to the previous year.

    Data from 2023 shows the growing importance of T-bills in financing deficits, with the average weekly refinancing obligation increasing from GH¢1.17 billion in 2022 to GH¢2.26 billion in 2023.

    At the same time, the average weekly uptake rose from GH¢1.52 billion in 2022 to GH¢2.87 billion in 2023, highlighting the crucial role of T-bills due to limited access to external capital markets and zero financing from the central bank.

    Secondary market

    Despite a 100bps cut in the MPC rate, activity in the bond market saw a marginal decline of 1.89 percent week-on-week. The new bonds recorded a total trading volume of GH¢1.59billion, with February 2028 (CPN: 8.50 percent) being the most actively traded and accounting for approximately 60 percent of the total volumes.

    Interest was also observed in Feb-2036 (CPN: 9.70 percent) and Feb-2037 (CPN: 9.85 percent), settling at 15.55 percent and 23.47 percent respectively last week. Moving forward, market activity is expected to pick up in the secondary market over the coming week.

  • Ghana ahead of Egypt, 15 African countries with high interest rates

    Ghana ahead of Egypt, 15 African countries with high interest rates

    Ghana now has higher interest rates than Egypt and 15 other nations in Africa.

    With 24.39% and 26.03% for the 91-day and 182-day treasury bills, respectively, Ghana outperformed Egypt in the Weekly Fixed Income Update compiled by several investment firms, making it the highest among the top 15 African economies.

    Egypt, on the other hand, came in second place among the top 15 African nations with rates for 91-day and 182-day Treasury bills of 23.41% and 24.02%, respectively.

    Interest rates in Ghana drastically decreased when the Domestic Debt Exchange Programme (DDEP) was finished in March 2023. Since that time, the prices have consistently increased to roughly 30% (364-day bill).

    The 91-day T-bill and 182-day T-bill also had declines of 10.97% and 9.95%, respectively, during the same time period in March.

    Despite this, Ghana now has the highest interest rates in the world, with an average lending rate of almost 38%, making it one of the most expensive countries in Africa.

    Since then, several economists and market observers have issued warnings about a potential rise in interest rates, particularly at a time when the government is looking for more money to fund its initiatives.

    The Bank of Ghana’s Monetary Policy Committee will meet for the 113th time on the appointed date to decide the next policy rate from the present 29.5 percent in order to reduce inflationary pressures.

  • T-bill demand falls, mounts pressure on issuance

    The demand for Treasury notes (T-bills) in the primary market has decreased for the first time this year, falling short of the government’s projected issue date of May 2023.

    Investors showed reduced momentum in their demand for 91- to 364-day bills, raising concerns about the Treasury’s ability to meet its debt obligations amid tighter liquidity conditions in the market.

    During May 2023, investors tendered GH¢14.04billion across the 91- to 364-day bills, reflecting a 4.2 percent under-subscription compared to the Treasury’s target of GH¢14.66billion. However, the Treasury was able to issue the amount tendered. The waning demand can be attributed to lingering effects of the Domestic Debt Exchange Programme, which has stifled demand for T-bills.

    Despite the under-subscription, the amount sold by the Treasury was sufficient to cover a face value (FV) of GH¢12.23billion maturing value during the month across all the bills, representing a maturity cover of 1.12x. The refinancing needs in May 2023 were the highest for the period with GH¢12.23billion – followed by GH¢9.35billion in March 2023, GH¢8.06billion in February 2023, and GH¢6.72billion and GH¢6.42billion in January and April respectively.

    May 2023 stood out as the month with the highest targetted issuance by the Treasury, aiming to reach GH¢14.66billion compared to GH¢8.19 billion, GH¢8.78 billion, GH¢11.19 billion and GH¢6.75 billion for January to April respectively.

    Yields sustained their uptrend

    Yields on Treasury bills continued their upward trend throughout the month, presenting a significant risk to government’s debt sustainability in the aftermath of the unprecedented domestic debt exchange programme (DDEP).

    In the month’s Treasury-bill auctions, yields experienced marginal increases as anticipated. The 91-day bill rose from 19.95 percent to 20.80 percent, while the 182-day bill increased by 91 basis points to 23.62 percent from 22.71 percent. Similarly, the 364-day bill jumped by 76 basis points to 28.02 percent from 27.26 percent.

    The rising borrowing costs for government due to higher yields on Treasury bills add further strain to an already burdened fiscal position. As the cost of government borrowing increases, it becomes increasingly difficult to manage the existing debt burden and fulfil future financial commitments.

    To address the escalating Treasury yields, government implemented measures in Q1-2023 reducing bids and capitalising on strong demand for bills to lower the cost of borrowing. Consequently, the yield on 91-day bills dropped from 35.36 percent in Q4-2022 to 19.39 percent in Q1-2023. That of the 182-day bill declined from 35.98 percent to 21.44 percent, and the 364-day bill fell from 35.89 percent to 25.66 percent during the same period.

    Market expectations indicate that yields on Treasury bills will continue to fluctuate in the near-term, with the potential for further increases. However, the real return on Treasury bills will remain negative until inflation returns to a single-digit figure or drops below 20 percent. The projected range for Treasury yields in the near-term is around 20 percent to 25 percent.

    Despite initial anticipation of a significant drop in Treasury yields to a range of 15 percent to 18 percent by end of Q3-2023, the current trend suggests a persistent rise in yields even amid the secured IMF bailout. This poses additional challenges for government’s financial management and debt sustainability.