Investors flood Treasury market, ahead of expected policy shift

Investors have aggressively pursued Treasury bills (T-bills), driving an oversubscription in the latest auction, as market participants anticipate potential policy changes that could reshape borrowing costs in the coming months.

Last week’s Treasury bill auction saw total bids reaching GH¢8.2billion against a targeted GH¢6.85billion, representing a 19.75 percentage point oversubscription.

The Treasury, unsurprisingly, responded by accepting all submitted bids, signalling a robust investor interest in government securities.

“We believe that the resurgence in investor demand is primarily driven by investors’ desire to lock in investments at high rates, particularly in anticipation of the newly elected administration likely to implement measures aimed at reducing borrowing costs in the near future,” analysts from Databank observed in a note.

The target coverage ratio stood at 1.19x, with a maturity coverage ratio of 1.27x. Analysts say these figures point to a strategic positioning that goes beyond typical market participation.

Yields across money market securities demonstrated notable movement, increasing by 17 basis points (bps), 18 bps and 4 bps across the three different primary bill tenors and reflecting the current financial environment.

Specifically, yields settled at 27.77 percent for 91-day bills, 28.49 percent for 182-day bills and 29.94 percent for 364-day bills, as the current high-interest environment continues to attract substantial investor attention.

T-bills have been the go-to option for the State since it was locked out of international capital markets following successive sovereign rating downgrades.

This is in addition to the local debt market coming to a halt on account of the domestic debt exchange programme (DDEP) which was announced in December 2022.

Databank, in its forecast for 2025, said it expects the government to shave as much as GH¢20billion from its T-bills auctions during the year, with a total stock in the region of GH¢200billion as other sources of financing open up.

The incoming administration has already hinted at firm fiscal consolidation, which is expected to further drive down demand for short-term instruments, with yields expected to fall in response.

The Treasury’s upcoming offer on Friday, 20th December, 2024 points to elevated market activity. The planned issuance aims to raise GH¢5.56billion through 91-day, 182-day and 364-day bills, strategically covering GH¢5.12billion in maturing obligations. This suggests that the Treasury is adopting a measured response to the market’s demonstrated appetite for government securities.

Parallel developments in the secondary bond market reinforce the broader investment trend. Trading volumes surged dramatically, expanding from GH¢715million to GH¢1.53billion—a more than 100 percent increase over the previous week.

The bond market’s composition revealed concentrated interest in specific maturities. February 2035 and February 2037 bonds dominated, accounting for 65 percent of total trade volumes. Longer-dated bonds between 2031 and 2038 captured 79 percent of market concentration, with yields to maturity climbing to 26 percent, indicating a clear preference for longer-term investment instruments.

“We expect the yields to maturity of longer-dated bonds to remain elevated in the near term as investors seek higher returns amid a rising interest rate environment,” Databank analysts projected.

The 2027-2030 maturity segment represented 21 percent of market turnover, with yields to maturity at 24 percent, demonstrating the nuanced investor strategy across different bond maturities. This reveals investors are carefully balancing risk and return across various time horizons.

These market movements further reinforce sentiments that investors are placing themselves strategically ahead of potential policy changes.