Investor confidence in the government’s short-term instrument (T-Bills) is deepening as the bills have recorded a second consecutive massive oversubscription.
This turnaround is coming after eight weeks of undersubscription ended last two weeks, with the government recording its first rebound in 2 months.
After seeing a massive oversubscription of 286%, the rebound has been sustained last week as investors flocked for the government bills irrespective of the significant cut in yields on the instruments.
The latest auction report published by the Bank of Ghana reveals that the government planned to borrow a total amount of GH¢ 7.7 billion. At the end of the auction last Friday, total bids submitted by investors amounted to a whopping GH¢ 20.1 billion, representing an oversubscription of 160%.
Majority of the bids came from the 91-day bill, with bids amounting to GH¢ 13.4 billion. The 182-day bill also accumulated GH¢ 8.7 billion, while the 364-day bill also amounted to GH¢ 5.9 billion.
With the massive oversubscription, the government exceeded its target for the auction. Although the government intended to borrow GH¢ 7.7 billion, it accepted an additional GH¢ 7.5 billion, almost double its target, walking away with a total of GH¢ 15.2 billion.
Based on the natural economic principle of the excess the supply, the lower the price, the government was able to bring down the interest on the bills significantly.
The interest rate of the 91-Day Bill declined significantly from 13.7276% to 10.8387%, while that of the 182-Day Bill also recorded a drop from 14.6164% to 13.2279%. The 364-Day bill also saw a decline from 14.7393% to 14.3050%.
Experts in the field, such as Courage Boti, have told The High Street Journal that the recent spike in the demand for government bills can be partly attributed to the suspension of the Bank of Ghana bills (OMO), which had higher bills relative to the government bills.
With the suspension of the BoG’s OMO, investors had no option than to channel their funds to the GoG bills.
Meanwhile, currency and fixed income trader, Kojo Letsa also attributes the high demand to the significant drop inflation rate below creating a return for investing in the GoG Bills.
But this is good news for the government, as it was able to borrow more at a cheaper rate.
In the meantime, the government plans to raise a very small amount of GH¢3.9 billion in its upcoming auction this week. Market watchers are closely monitoring the market to see if rebounding investor confidence will continue or it’s just a “nine-day wonder.”
