During Q1 2023, the Ghanaian Treasury exceeded its issuance target by around GH¢8.25 billion, raising a total of GH¢36.41 billion. This led to a frontloading of capital raising on the money market due to limited investment options, resulting in higher demand for short-term securities. The demand for Treasury bills continued to rise in Q1 2023 due to attractive yield levels and market uncertainties, with the Treasury accepting GH¢36.41 billion from a total investor bid of GH¢39.46 billion across 91-day to 364-day bills, against a target size of GH¢28.16 billion.
The exemption of Treasury bills from the domestic debt exchange program in Q4 2022 led the government to turn towards the Treasury market to finance its budget deficit after being priced out of the bond market. In Q1 2023, the Treasury made fresh issuances of GH¢12.28 billion, while GH¢24.13 billion covered maturing securities, reflecting a year-on-year increase of 138 percentage points compared to Q1 2022. In 2022, the Treasury sold a gross amount of GH¢71.06 billion across tenors on the money market, sufficient to cover a gross maturing face value of GH¢59.27 billion.
The 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. It attempted to drive down interest rates across 91-day to 364-day money market instruments, to as low as 15 percent.
However, the market believed that the relatively high-interest costs did not factor in the government’s medium-term Debt Sustainability Analysis (DSA), prompting the Treasury to take steps to ‘force’ interest rates down at the close of Q1. As a result, the coupon rate on the 91-day T-bill reduced by 1648 basis points to 18.88 percent from 35.36 percent, while the 182-day bill decreased to 21.44 percent by 1454 basis points from 35.98 percent, and the 364-day bill declined by 1028 basis points to 25.66 percent from 35.89 percent.
MPC tightening stance
The Bank of Ghana’s recent efforts to tighten liquidity have put a stop to the declining yields in the short-term market. The Treasury had been keeping yields at around 15% on the 91-day T-bill to cut costs, but this has now been reversed. At the March 2023 Monetary Policy Committee meeting, the policy rate was increased by 150 basis points to 29.5%, and the cash reserve requirement was increased to 14%.
Over the last two weeks, Treasury yields have risen slightly to attract investors as demand weakened. This is the second consecutive week that T-bill yields have increased after nine weeks of oversubscriptions, which had caused yields to decline.
At the most recent auction on April 3, 2023, the 91-day bill increased by 50 basis points to 19.39%, while the 182-day bill rose by 42 basis points to 21.86%. Prior to this auction, demand for T-bills had decreased due to dissatisfaction with the yields on short-term bills. This resulted in under-subscription of GH¢2.44 billion, which was 24% below the GH¢3.21 billion issuance target.
This week, the Treasury aims to raise GH¢1.77 billion to refinance its maturity value of GH¢1.68 billion across the 91- to 364-day bill.
The market expects that yields will continue to rise in the coming weeks due to the liquidity crunch, although this will be at a moderate pace to attract investors. Treasury bills remain one of the primary avenues for the government to finance its budget deficit