Investors flock to 364-day T-bills

Momentum in the Treasury market persists, with investors displaying heightened interest in T-bills during the latest money market auction – submitting bids totalling GH¢6.96billion against a GH¢4.59billion target, as per auction results released by the Bank of Ghana.

This resulted in an impressive 52 percent oversubscription, representing the highest weekly offer in the current year. The sustained robust demand for T-bills in recent weeks underscores investors’ ongoing appetite for higher returns, particularly in anticipation of an imminent decline in rates.

Notably, demand for the 364-day tenor reached an unprecedented high of GH¢2.29billion in a single auction; emphasising investors’ eagerness to capitalise on potentially lucrative returns offered by the 364-day yield.

Last week’s auction boasted a bid-to-cover ratio of 1.02x, with the Treasury rejecting GH¢117.78million while accepting GH¢6.85billion in aggregate bids. This uptake not only surpassed the auction target but also exceeded maturities by approximately 49 percent and 60 percent respectively.

The trend of decreasing yields persisted for the seventh consecutive week, with the 91-day T-bill experiencing a 30 basis points (bps) drop to 28 percent. The 182-day and 364-day yields followed as well, contracting by 36 bps and 40 bps, settling at 30.44 percent and 31 percent respectively.

Looking ahead, the Treasury aims to raise GH¢4.87billion in the next auction scheduled for Friday, February 16, 2024. The funds will be allocated to refinance maturing Face Value (FV) of GH¢4.15billion falling between the 91- and 182-day bills.

Market analysts anticipate continued downward pressure on yields in the near-term. Apakan Securities stated: “As demand for Treasury bills remains high, we think yields on Treasury bills will maintain their downward path”. Furthermore, Apakan Securities mentioned the upcoming announcement of the Consumer Price Index (CPI) for January 2024 by the Ghana Statistical Service, expressing expectations of a receding inflation rate – albeit at a moderate pace.

However, Databank – an asset management company – highlighted a potential upside risk to yields due to the relatively high auction target. Despite this, it believes investors’ steadfast demand for T-bills may mitigate this risk, allowing the Treasury to persist in trimming yields.

Sluggish trend in bond market activity

In contrast to keen activity in the T-bill market, the secondary bond market for government papers witnessed a slowdown; with a 16.25 percent week-on-week decline in the total volume traded amounting to GH¢1.33billion. The Feb-28 (coupon: 8.5 percent) and Feb-29 (coupon: 8.65 percent) papers jointly accounted for approximately 76 percent of the aggregate market turnover.

The local currency (LCY) yield curve experienced a downward reversal, with the average yield to maturity (YTM) on the 2027-2030 papers decreasing to 19.13 percent (-198 bps) and the 2035-2038 papers retreating to 17.07 percent (-14 bps).

Commenting, Apakan reported a total volume of GH¢170million in old bonds, anticipating government’s settlement of coupon and maturity payments for the matured old bond in Feb-2024, with a coupon rate of 19.75 percent.

Databank echoed the sentiment of sluggish performance in bond market activity, attributing it to the prevailing strong demand for T-bills among investors seeking higher returns in the face of declining T-bill yields.

As market participants eagerly await release of the Jan-2024 inflation figure on Wednesday, February 14, 2024, analysts anticipate that market activity will stabilise – with investors pivoting their attention to the forthcoming economic indicator.

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