T-bill yields drop further amid robust investor demand

Yields on Treasury bills (T-bills) have continued a downward trend in the latest auction, marking the fifth consecutive week of declines.

This development, driven by robust investor demand with oversubscription reaching 58 percent last week, will certainly be welcome news to government as it further lowers its cost of borrowing.

During the auction, yields decreased notably with the 91-day and 182-day bills contracting to 28.30 percent (-0.29 percent) and 30.79 percent (-0.3 percent) respectively. The 364-day yield witnessed the biggest drop, as it closed at 31.40 percent (-0.4 percent).

The auction aimed to raise GH¢2.86billion, but received bids worth GH¢4.53billion for short-term bills. All the bids were accepted, covering the current debt due of GH¢2.67billion and 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 noticeable shift toward the 364-day bill, indicating higher demand for longer-term securities – although the 91-day bill remains the most preferred.

Investors are strategically seeking opportunities to secure higher returns amid declining T-bill rates, as observed by the surge in oversubscription during recent weeks. On this, Apakan Securities emphasised that the trend underscores investors’ intentional pursuit of maximising returns amid the decreasing rates.

This proactive stance of investors also reflects a keen interest in capitalising on prevailing market conditions to secure favourable returns. The trend of increased uptake in T-bills is expected to persist amid declining yields, according to Databank.

Last month, the Treasury exceeded its auction target by raising GH¢22.06billion – an uptick of approximately 35 percent month-on-month. Databank anticipates a continuation of this uptake trend in February 2024, driven by an estimated cash coupon payment of about GH¢4.3billion on new bonds.

However, yields are expected to decline further – in line with the disinflation trend and 100bps cut in the key monetary policy rate during the January 2024 Monetary Policy Committee meeting.

This week, the Treasury aims at raising GH¢4.59billion to refinance maturing debt totalling GH¢4.23billion. Despite being the highest target size in nine weeks, upbeat market demand suggests the Treasury is likely to meet its target in the upcoming auction – with further yield declines anticipated.

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

Data from 2023 highlight the increasing role of T-bills in deficit financing, with the average weekly refinancing obligation rising from GH¢1.17billion in 2022 to GH¢2.26billion in 2023. Concurrently, the average weekly uptake increased from GH¢1.52billion in 2022 to GH¢2.87billion in 2023; underscoring the pivotal role of T-bills due to limited external capital market access and zero central bank financing.

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.