It is emerging that the latest surge in the demand for T-bills is a result of the significant drop in inflation, and fixed income, currency trader Kojo Letsa has revealed.
Ghana’s T-bills market, in the latest auction, experienced a sudden surge in investor activity. After recording 7 weeks of undersubscription, the bills were massively oversubscribed in the latest auction, shocking market watchers.
The government sought to raise just GH¢5.4 billion, but demand soared to a staggering GH¢20.9 billion. This marked an impressive oversubscription rate of 286%, the highest seen in many months.
The government walked away with almost twice its target, even at a significantly reduced interest rate.
Explaining the possible cause of the impressive investor rebound, Kojo Letsa tells The High Street Journal that the sharp rebound in investor appetite is directly tied to the recent fall in inflation.
He explains that inflation significantly dipped to 13.7% in June. This compares to an average interest rate on the bills, which is hovering around 14.4%.
This means the significant drop in inflation below the interest rate on the bills offers real returns for investors. This real return, which has been non-existent on the market for many weeks, triggered the mad rush for the bills, which were facing investor pullback in the past weeks.
“The inflation rate for June has decreased to 13.7%. This has resulted in increased activity in T-bill subscriptions, driven by the expectation of continued inflation decline,” the market player explained.
He further indicates that there’s a growing sentiment that inflation will keep declining in the coming months. Investors are then rushing to lock in current yields while they still look attractive.
Although investors also anticipate a further drop in the interest rate, they are taking advantage of the favourable inflation rate to reap real returns on their investments.
“Investors are capitalizing on the current perceived high rates before the anticipated decrease,” Kojo Letsa added.
Just weeks ago, investors were flocking to demand Bank of Ghana bills offering rates upwards of 27%. Analysts say this momentum could continue if inflation keeps falling and market confidence in fiscal discipline strengthens.
The Ministry of Finance has since revised its upcoming borrowing target to GH¢7.7 billion for the next auction, signalling its intention to ride the wave of renewed investor enthusiasm.
But experts also warn that if inflation rebounds or if rates fall too quickly, the current surge could evaporate as fast as it arrived.
Still, for now, investors see a rare alignment of falling inflation, stable returns, and a government eager to absorb liquidity, a near-perfect storm for T-bill demand.
