Ghana’s Short-Term Debt Market Sees Strong Demand

The Government of Ghana’s recent Treasury bill auction has once again demonstrated robust investor appetite for short-term debt securities.

The latest auction raised an impressive GHS 5.824 billion ($500 million), surpassing the targeted amount of GHS 5.623 billion by GHS 201 million.

Meanwhile, this marks the fifth consecutive week that the government has exceeded its auction targets, highlighting strong investor confidence despite the challenging fiscal environment.

The consistent oversubscription of Treasury bills (T-bills) is a positive sign for Ghana’s domestic debt market. It shows that investors, both institutional and individual, continue to view the government’s short-term debt instruments as a relatively safe investment.

The government’s success in meeting and surpassing its borrowing targets is particularly noteworthy given the broader economic context. Ghana has been grappling with high inflation, a volatile currency, and fiscal challenges, yet investor confidence in T-bills remains strong.

A key factor driving this demand is the attractive yields offered on T-bills, which have been rising steadily in recent months. The latest auction saw a notable increase in yields across the board. The 91-day bill yielded 26.82%, up by 0.26 percentage points from the previous auction.

Similarly, the yield on the 182-day bill increased to 27.67%, a 0.09 percentage point gain, while the 364-day bill saw its yield rise to 29.12%, also up by 0.09 percentage points. These yield gains have made T-bills a compelling investment option, especially for those seeking a hedge against inflation and currency depreciation.

Bill Dominates

The 91-day Treasury bill, the shortest-term instrument offered by the government, was the standout performer in the latest auction. It attracted bids totalling GHS 5.10 billion, reflecting strong demand from investors who prefer the relative safety and liquidity of short-term instruments.

This preference is likely driven by the uncertain economic environment, as investors tend to favour shorter maturities when market conditions are volatile.

The 182-day and 364-day bills also saw substantial interest, raising GHS 560 million and GHS 157 million, respectively. However, the dominance of the 91-day bill indicates that many investors are opting for shorter durations, likely due to concerns over potential changes in interest rates and inflation.

The rising yields on these instruments have further fueled demand, as they offer a higher return compared to other fixed-income options available in the market.

Debt Financing

The strong performance of the Treasury bill auction underscores the government’s continued reliance on domestic debt financing to meet its short-term funding needs. Given the current economic challenges, including limited access to international capital markets, the government has turned to local investors as a key source of financing. This strategy appears to be paying off, as evidenced by the consistent oversubscription of T-bills.

However, the increasing reliance on domestic borrowing raises questions about the sustainability of the government’s debt strategy. While the demand for T-bills has remained robust, the rising yields indicate that the cost of borrowing is also increasing. Higher yields may help attract more investors in the short term, but they also translate into higher interest payments for the government, potentially adding to the fiscal burden.

Looking ahead, the government plans to raise an additional GHS 6.22 billion through another T-bill auction next week. If recent trends continue, it is likely that the auction will once again exceed its target, reflecting sustained demand for short-term securities. The rising yields are expected to keep attracting investors, especially those seeking higher returns in a high-inflation environment.

The strong demand for T-bills is a positive sign for the domestic debt market, as it suggests that investors still have confidence in the government’s ability to meet its short-term obligations. However, it also highlights the government’s growing dependence on short-term borrowing, which may pose risks if market conditions change or if yields continue to rise.