High Treasury yields persist two years on

By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU

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The domestic Treasury money market continues to witness elevated yields that have persisted since January 2023, an examination by the B&FT has shown.

These high yields, primarily driven by robust investor demand, have become a hallmark of the market in the aftermath of the domestic debt restructuring programme (DDEP), as government increasingly relies on short-term borrowing to meet its financing needs.

Despite minor dips during the period under consideration, the short-term instruments have been within touching distance of 30 percent.

As of January 20, 2025, the 91-day and 182-day Treasury bill yields rose by 8 basis points (bps) and 1bp, reaching 28.42 percent and 28.97 percent respectively compared to the previous week.

The 364-day bill recorded an 11bps increase to settle at 30.29 percent. Despite these elevated rates, investor interest remains undeterred. A record-breaking auction recently garnered bids worth GH¢8.8billion against a target of                       GH¢6.35billion, with the Treasury accepting GH¢8.84billion – marking the highest auction size in Ghana’s history.

Notably, inflation is at 23.8 percent as of December 2024 while monetary policy rate stands at 27 percent. This leaves the real interest rate in a positive territory of about five percent.

Government also appears to be frontloading its 2025 financing requirements, leveraging the sustained demand for short-term instruments. With GH¢5.6billion in maturities due next week, the Treasury aims to raise GH¢6billion in its January 24 auction – an indication of further oversubscription expectations.

Fluctuating yields and persistent demand

The high-yield environment in 2025 mirrors the comparable period of 2024.

In 2024, whilse Treasury bill yields had declined for three consecutive weeks by January 15, 2024 -driven by a 320bps drop in December 2023 inflation to 23.2 percent – the rates remained around the 30 percent mark. During that time the 91-day bill yield fell by 15bps to 29.04 percent, the 182-day bill dropped by 22bps to 31.52 percent and the 364-day bill declined by 26bps to 32.08 percent. Yet investor interest remained strong, with bids totalling GH¢3.86billion – oversubscribing the GH¢2.36billion target by 47 percent.

In early 2023 yields were markedly higher, reflecting inflationary pressures from a 54.1 percent inflation rate in December 2022 that eroded real returns on Treasury securities.

However, investors turned to Treasury bills as a safe haven during economic uncertainty – pushing yields on the 91-day and 182-day bills to 35.46 percent and 35.83 respectively while the 364-day bill rose to 35.92 percent.

By March 2023 government made efforts to lower borrowing costs, temporarily driving yields as low as 15 percent. This strategy aimed to capitalise on demand for short-term maturities but proved unsustainable due to limited borrowing options following the debt restructuring.

Impact of debt restructuring

The debt restructuring efforts of 2023 significantly shaped the Treasury market, as limited access to international capital markets and the need to refinance domestic debt compelled government to rely heavily on short-term securities.

This dependence on shorter maturities, fuelled by lingering uncertainties in the bond market, has cemented high yields as a defining feature of the market. While this strategy provides a steady financing source, it also increases government’s interest payment obligations.

The high-yield environment is expected to persist through the first quarter of 2025 as investors remain confident in the safety and returns of short-term securities.

“We expect investor response to yield compression may be delayed until mid-2025. Significant policy measures to reduce sovereign borrowing costs will likely drive yields down from a high of 27 percent as of November 2024,” Databank stated in its 2025 market outlook.

Additionally, government has indicated plans to reduce reliance on money market funding and potentially issue longer-dated securities later in the year.

Databank projects government will borrow approximately GH¢200billion from the T-bill market in 2025 – down from an estimated GH¢220billion of 2024 – translating to a weekly average uptake of GH¢3.9billion versus GH¢4.2billion previously.

Improved access to international funding and recovering macroeconomic indicators could enable government to pivot toward longer-term financing options after the first quarter. However, refinancing needs from high uptake in the second half of 2024 may keep demand for short-term funding elevated.

Policy and inflation dynamics

The Monetary Policy Committee’s (MPC) first meeting of 2025, slated for this week, is expected to influence market dynamics through its interest rate decision. Persistent inflationary pressures, evidenced by rising consumer inflation – from 21.5 percent in September 2024 to 23.8 percent in December 2024 – have increased the likelihood of further policy rate hikes.

Some analysts are predicting a significant rate hike during the MPC’s January 2025 meeting – as high as 200bps, aimed at stabilising inflation and restoring macroeconomic stability.

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