Investors capitalise on high returns amid declining T-bill rates

Investors are strategically seizing opportunities to secure higher returns in light of the declining rates of Treasury bills (T-bills) amid an evolving Treasury market.

Apakan Securities, a financial advisory firm, reported an impressive overfunding in the recent government securities auction – with demand surpassing the target by 121 percent.

Apakan Securities interprets this surge in oversubscription as a clear indication of investors making intentional decisions to maximise returns amid the continuous decrease of T-bill rates.

The firm stated: “The sharp oversubscription in recent weeks underscores investors’ decision to lock-in higher returns amid the declining T-bill rates”.

Two weeks ago, the Treasury accepted and allotted GH¢5.50billion out of GH¢5.61billion tendered across the bills; a move expected to cover the maturity size of GH¢2.36billion. This trend reflects investors’ proactive stance in capitalising on prevailing market conditions, showcasing a keen interest in securing favourable returns.

Yields on T-bills continued their descent, with the 91-day bill decreasing by 29 basis points to settle at 28.59 percent; the 182-day bill declining by 30 basis points to 31.10 percent and the 364-day bill dropping by 20 basis points to 31.80 percent.

Analysts at Apakan Securities predict that the recent 100 basis points policy rate cut will further contribute to the T-bill rates’ ongoing decline, enhancing the attractiveness of these instruments in the money market. “The 100bps rate cut by Ghana’s central bank is expected to reinforce the decline in T-bill rates this week,” the firm stated.

The auction was held on Friday, February 2, 2024 and is anticipated to be oversubscribed due to heightened demand coupled with a lower target, as the Treasury aims to raise a total GH¢2.86 billion across 91- to 364-day bills to refinance a sum maturing face value of GH¢2.67billion. “We expect the auction will be oversubscribed this week, on the back of heightened demand amid a lower target.” The recent 100 basis points rate cut by the central bank is expected to further reinforce the downward trajectory of T-bill rates in the upcoming week.

The average weekly refinancing obligation for the Treasury increased from about GH¢1.17billion in 2022 to GH¢2.26billion in 2023. Concurrently, the average weekly uptake advanced from GH¢1.52billion in 2022 to GH¢2.87billion in 2023. This data sheds light on the primary market performance in 2023, emphasising the pivotal role T-bills played in deficit financing due to limited external capital market access and zero central bank financing.

Databank predicts that more than 50 percent of the GH¢61.9billion budget deficit in 2024 will be raised through T-bills. The estimated T-bill issuance is projected to reach approximately GH¢180billion, marking a significant 21 percent increase compared to the previous fiscal year.

In November, the central bank highlighted a significant contraction in reserve money due to strict adherence to zero financing of the budget and sustained liquidity withdrawal efforts of about GH¢44.9billion (5.3 percent of GDP, year-to-date). To address excess structural liquidity conditions in the market and provide additional impetus to the disinflation process, the Bank of Ghana Monetary Policy Committee implemented a decisive step – introducing a 15 percent unified Cash Reserve Ratio (CRR) on both local and foreign currency bank deposits.

Effectively, about GH¢12billion has been withdrawn from the market through the new CRR policy changes. In addition, GH¢17billion was drained from the market following the last quarter of 2023.