For the third consecutive week, the Government of Ghana has fallen short of its Treasury Bill target, recording a significant 32.19% undersubscription in its latest auction. While the government sought to raise GH¢4.63 billion, it received bids totaling only GH¢3.16 billion, ultimately accepting GH¢2.84 billion. Some market watchers say the shortfall could be due to the recently issued 7-year bond, as some investors might have placed their funds in the bond. Additionally, investors for the first time since the domestic debt exchange have another investment option other than treasury bill because of the bond issue.
This shortfall comes at a delicate time for the economy, as the “Hormuz Choke” continues to exert pressure on domestic liquidity. The auction results, released by the Bank of Ghana, reveal a market that is becoming increasingly cautious, leading to a subtle but noticeable shift in the yield curve.
The Auction Breakdown
Investor preference remained heavily skewed toward the short end of the curve, signaling a desire for liquidity during these uncertain global times. The 91-Day Bill was the most popular instrument, seeing GH¢2.02 billion in bids—representing over 63% of the total, with an eventual uptake of GH¢1.99 billion. The 182-Day Bill recorded bids of GH¢498.9 million, of which GH¢416.9 million were accepted, while the 364-Day Bill saw GH¢648 million in bids, with the government accepting GH¢433 million.
The Yield Curve: A Tug-of-War Between Interest and Growth
While the government struggled to meet its volume targets, the price of borrowing—the interest rate, began to inch upward again. The yield on the 182-day bill rose to 6.71% from the previous week’s 6.62%, while the 364-day bill inched up by 7.0 basis points to reach 9.84%.
For individual and institutional investors, this uptick in rates is exciting news. After months of falling returns, the slight rise in T-bill yields offers a better reward for those willing to lend their money to the state. The rising rates provide a necessary cushion for those looking to protect the value of their savings and maximize their investment portfolios.
Conversely, for the Ghanaian business community, this trend is far from pleasant. The rise in T-bill rates often serves as a “floor” for commercial lending across the country. For months, the government had successfully driven down interest rates, allowing businesses to plan for cheaper credit and expansion. However, this recent uptick signals a potential deceleration or even a reversal of falling lending rates. If the government must pay more to borrow from the public, banks are likely to follow suit, keeping the cost of loans high for entrepreneurs and manufacturers already struggling with high fuel and shipping costs.
The Implications for Policy
The persistent undersubscription suggests that the market is tight. For the managers of the economy, this is a double-edged sword. To attract the funds needed to bridge its funding gap, the government may be forced to allow rates to climb even higher. However, doing so risks lending rates going up and increasing the cost of doing business with implications for prices of locally produced goods and services.
The latest T-bill auction is a clear reminder that the era of easy, falling rates may be hitting a war-time ceiling. While investors may celebrate the marginal gains in their portfolios, the broader business community will be watching the yield curve with concern, fearing that the era of affordable credit is being threatened.
