Government will attempt to drive interest rates of key money market instruments – particularly Treasury bills across the 91, 182 and 364-day tenors – to as low as 15 percent in an aggressive move to reduce its cost of borrowing by taking advantage of the high demand environment for short-term maturities, a market actor, who pleaded anonymity due to the subject’s sensitive nature, has hinted.
“I have been told by a source that if the debt exchange is successful, government is going to force Treasury-bill rates down to 15 percent. They will definitely not be offering the over-30 percent that we are seeing,” the anonymous source said.
The source was concerned that a sharp drop in T-bill yields could see investors trooping into other asset classes such as currency. “Government will attempt to push these rates further down as we have already seen; but with inflation still expected to keep interest rates in the negative territory for the foreseeable future, investors might be tempted to find safety in options such as forex.”
Some market analysts have said that a combination of high cost for servicing the instruments coupled with the vast difference in rates of the new bonds issued under the Domestic Debt Exchange Programme (DDEP) will make it impossible for government to issue T-bills at the prevailing rates.
Corroborating this anticipated move by government, banking consultant Dr. Richmond Akwasi Atuahene disclosed in an interview that investors have been flocking to Treasury-bills due to a belief that their investment options are restricted – resulting in oversubscription for this area. However, government cannot sustain its borrowing levels.
“The recent oversubscription in this segment has been because investors believe their choices are limited; and since we have heard that Treasury-bills will not be affected in the exchange, there has been an influx of investors in that direction. But government cannot maintain borrowing at that level and at the same time offer between nine to 15 percent yields on bonds… it simply cannot work,” the banking consultant said.
It emerged that at the most recent auction on Friday, March 3, 2023, government rejected all bids for the short-term instruments even as the shortest-tenor bill rate jumped from 12.52 percent at the beginning of last year to 35.66 percent a year later.
Already, official data show that the interest rate for the benchmark security has tumbled to 24.16 percent, following the last auction session on March 7, 2023. Government was able to lower the cost of its Treasury bills, resulting in an oversubscription of about 121.6 percent and generating GH¢6.15 billion in revenue from the latest auction. However, government only accepted GH¢4.52billion of the bids… which mainly came from banks.
Constant Capital, an investment advisory firm, in its review of the market observed that in an aggressive move to reduce its cost of borrowing, the Treasury rejected all bids tendered last Friday; instead asking for bids in the sub-30 percent region. The Treasury was seeking to raise GH¢2.78billion from the short tenors to refinance imminent maturities worth GH¢2.55billion.
The Bank of Ghana reported that government reduced the pricing of 91-day T-bills from 35 percent to a yield of 24.16 percent, while the 182-day and 364-day bills were sold at 26.55 percent and 27.54 percent respectively. The results showed that the 91-day T-bill received bids worth GH¢2.73billion, but government accepted only GH¢1.16billion.
Similarly, for the 182-day bills bids tendered were estimated at GH¢1.526billion but government accepted only GH¢1.16billion. For the 364-day bill, the bids tendered were valued at GH¢1.886billion, with government accepting only GH¢1.882billion.
“We reckon the current relatively high interest costs do not factor-in government’s medium-term Debt Sustainability Analysis (DSA), prompting the Treasury to take steps to ‘force’ interest rates down at this auction. Due to limited market access, government has been actively tapping the Treasury-bill market – its only market window currently – to refinance maturing obligations and also build some buffers, leading to continuous accumulation of a relatively high interest burden,” said market-watcher Constant Capital.
