At least for the last seven consecutive weeks, Ghana’s Treasury bill market has delivered an interesting development where it cannot be said that investor appetite is a problem for the government, at least, for now.
With the high investor appetite and liquidity, the bigger question is how much the government wants to borrow, and at what price.
An analysis of the last seven Treasury bill auctions conducted by The High Street Journal shows investors offered a combined GH¢72.75 billion to the government, against a cumulative borrowing target of just GH¢44.08 billion.
This simply means that the government, in the last seven weeks, targeted to borrow a total of GH¢44.08 billion; however, investors brought a whopping GH¢72.75 billion.
That represents GH¢28.67 billion of excess demand over what the Treasury initially sought. Yet the government accepted GH¢55.06 billion, leaving GH¢17.69 billion of bids on the table.
The seven-week gap tells the story
| Auction | Target | Bids | Accepted | Rejected | Oversubscription | Outcome vs Target |
|---|---|---|---|---|---|---|
| 1 | GH¢3.40bn | GH¢4.20bn | GH¢3.20bn | GH¢1.00bn | 23.5% | GH¢200m below |
| 2 | GH¢5.67bn | GH¢10.03bn | GH¢7.38bn | GH¢2.65bn | 76.9% | GH¢1.71bn above |
| 3 | GH¢7.40bn | GH¢12.70bn | GH¢9.98bn | GH¢2.72bn | 71.6% | GH¢2.58bn above |
| 4 | GH¢9.50bn | GH¢12.40bn | GH¢11.50bn | GH¢900m | 30.5% | GH¢2.00bn above |
| 5 | GH¢5.90bn | GH¢10.50bn | GH¢8.70bn | GH¢1.80bn | 78.0% | GH¢2.80bn above |
| 6 | GH¢6.217bn | GH¢11.637bn | GH¢9.419bn | GH¢2.218bn | 87.2% | GH¢3.202bn above |
| 7 | GH¢5.993bn | GH¢11.280bn | GH¢4.882bn | GH¢6.398bn | 88.2% | GH¢1.112bn below |
The pattern in the last seven weeks is that in every single one of the seven weeks, investors offered more money than the government initially requested.
In Week 6, for instance, investors offered GH¢11.64 billion against a GH¢6.22 billion target. In Week 7, they offered GH¢11.28 billion against GH¢5.99 billion. The result was a market where money was chasing Treasury securities far more aggressively than the government’s initial borrowing requirements suggested, signalling a very highly liquid market.
However, it is important to note that the government was not simply saying “no” to borrowing. For many who may conclude that, the data does not support the conclusion that the government was unwilling to borrow more generally.
Across the seven auctions, the Treasury actually accepted GH¢10.98 billion more than its cumulative targets. In five of the seven weeks, it borrowed above the amount it initially announced.
This means that the government was willing to take additional money when the market conditions suited its financing strategy, but it did not automatically convert every investor bid into government debt.
The numbers show just how selective the government has been, as GH¢17.69 billion has been left on the table for the last seven weeks.
Of the GH¢72.75 billion investors offered during the seven-week period, GH¢17.69 billion was rejected. That is roughly 24.3% of all bids submitted.
The latest auction was particularly significant, according to the auction report. Investors offered GH¢11.28 billion, but the Treasury accepted only GH¢4.88 billion, rejecting GH¢6.40 billion, or 56.7% of total bids.
Even more strikingly, the government finished that auction GH¢1.11 billion below its target despite receiving bids worth GH¢5.29 billion more than the target.
That is perhaps the clearest demonstration of the constraint amid high liquidity.
Experts say treasury bills are not simply about finding someone willing to lend. They are about finding someone willing to lend at a yield the government considers acceptable. An investor may be prepared to put GH¢1 billion into a Treasury bill, but if that investor demands a yield that the Treasury considers too expensive, the government can reject the bid.
Investors have consistently offered far more money than the government initially sought, but the Treasury has remained selective about how much of that demand it converts into actual borrowing.
The sustained oversubscriptions also point to significant liquidity seeking investment opportunities within Ghana’s financial system. Investors have repeatedly been willing to place billions of cedis into government securities, even as yields have generally moved lower at the short end.
This creates an interesting dynamic which is favorable to the government as Strong demand + falling yields = cheaper potential financing.
The more investors compete for Treasury bills, the less pressure there may be on the government to offer higher returns, particularly at the shorter end. But the Treasury still has to balance this against its own cash requirements, debt-management objectives and the maturity profile of its obligations.
After seven weeks, perhaps the most important conclusion is not that government cannot borrow. It is that Ghana currently appears to have more investors willing to lend than the treasury needs, or is willing to accept, under every set of auction conditions observed in this period.
It can therefore be deduced that the question in Ghana’s T-bill market is no longer simply, “Who will lend to government?” It is increasingly, “How much does government want; and what is it prepared to pay for it?”
