The Treasury exceeded its Issuance target for Q1 2023 by approximately GH¢8.25billion, issuing GH¢36.41billion in total; thus frontloading its capital raising requirement on the money market due to limited investment options available to investors, resulting in higher demand for short-term securities.
B&FT’s analysis of the issuance data reveals that the demand for T-bills continued to soar in Q1 2023 due to attractive yield levels and persistent market uncertainties. Across the 91-day to 364-day bills, the Treasury accepted about GH¢36.41billion in Q1 2023 from a total investor bid of GH¢39.46billion, against a target size of GH¢28.16billion.
This follows the exemption of Treasury-bills from the domestic debt exchange programme in Q4-2022, as government turned toward the Treasury market to finance its budget deficit after being priced out of the bond market.
During Q1 2023, the Treasury made fresh issuances of GH¢12.28billion while GH¢24.13billion covered maturing securities. The issuance made in Q1 2023 reflects an increase of 138 percentage points year-on-year, compared to Q1 2022 at GH¢15.28billion from a total investor bid tender of GH¢15.66billion.
Cumulatively, in 2022 the Treasury sold a gross amount of GH¢71.06billion across tenors on the money market, which was sufficient to cover a gross maturing face value of GH¢59.27billion for the year.
Government has been tapping the Treasury-bill market to refinance maturing obligations and build buffers, leading to the continuous accumulation of a relatively high-interest burden. To reduce the cost of borrowing, the Treasury took advantage of the high demand environment for short-term maturities and compressed yields starting in March 2023. Government has attempted to drive down the interest rates across the 91-day to 364-day money market instruments, to as low as 15 percent.
The market held the view that the 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 the close of Q1.
At the end of Q1, the coupon rate on the 91-day T-bill had reduced by 1648 basis point (bps) to 18.88 percent from 35.36 percent; and the 182-day bill also reduced, to 21.44 percent by 1454bps from 35.98 percent; and the 364-day bill declined by 1028 bps to 25.66 percent from 35.89 percent.
MPC tightening stance
The decline in yields across the short-term spectrum of the market has halted amid tightening liquidity efforts by the Bank of Ghana, signalling a reversal of cost-cutting moves by the Treasury to keep yields on the low at around 15 percent on the 91-day T-bill. At the March 2023 Monetary Policy Committee (MPC) meeting, the policy rate was increased by 150 basis points (bps) to 29.5 percent and the cash reserve requirement increased to 14 percent.
Treasury yields rose marginally over the last two weeks to attract investors as demand weakened in the previous week, marking a second successive week the yields on T-bills increased – following nine consecutive weeks of robust auction performance of oversubscriptions which had yields on the decline.
During the last two week’s auction, which was settled on April 3, 2023, the 91-day bill increased by 50bps to 19.39 percent, while the 182-day bill surged by 42bps to 21.86 percent. Prior to this auction, which was settled on April 3, 2023 following the MPC’s decision, the market had signalled dissatisfaction with the yields on short-term bills. This resulted in a downturn of demand for T-bills after nine consecutive weeks of oversubscription – recording under-subscription of GH¢2.44billion, 24 percent short of the GH¢3.21billion issuance target.
With GH¢1.68billion due across the 91- to 364-day bill this week, the Treasury intends to raise GH¢1.77billion to refinance its maturity value today.
The market anticipates that yields will continue their upward trajectory in the coming weeks on the back of the liquidity crunch – albeit at a moderate pace to attract investors, as Treasury-bills remain one of the key avenues for government in financing its budget deficit.