Liquidity drain dampens T-bill auction as Treasury falls short of target

Aggressive liquidity tightening by the Bank of Ghana (BoG) has been cited as a key factor for the performance of last week’s Treasury bill auction, which saw bids fall significantly short of government’s target.

According to an analysis by Databank Research, the central bank’s open market operations (OMO) absorbed some GH¢19billion ahead of the sale – constraining the market’s capacity to meet government’s GH¢5.58billion target.

“We believe subdued bank demand – following the Bank of Ghana’s contractionary open market operations that absorbed about GH¢19bn ahead of Friday’s Treasury-bill auction – largely drove the soft demand,” Databank said in a note.

This ensured a return to the prevailing trend of undersubscription, after the Treasury broke that pattern with a 14 percent oversubscription two weeks ago.

The auction closed with total bids of GH¢3.49billion, representing a shortfall of 37.53 percent against the target. The Treasury accepted GH¢3.46billion; a coverage ratio of just 0.62x of the target and 0.64x of maturing bills worth GH¢5.44billion.

Yields edged up marginally across the curve with the 91-day bill rising 5 basis points (bps) to 10.5 percent, the 182-day gaining 3 bps to 12.39 percent and the 364-day increasing 2 bps to 12.90 percent.

Databank noted that the modest yield movements signal a market still adjusting cautiously, rather than pricing in heightened sovereign risk.

“The marginal yield uptick reflects cautious repricing rather than strong risk premia,” it said.

Investors also showed a continued preference for shorter maturities amid uncertainty. Databank observed: “Short-end preference is set to persist until deeper secondary market liquidity strengthens conviction along the curve”.

In the coming week, the Treasury plans to raise GH¢3.71billion through the issuance of 91-day, 182-day, and 364-day bills to cover GH¢3.61billion in maturing bills. Market participants will be watching closely to see whether liquidity conditions improve sufficiently to support full subscription.

Meanwhile, activity in the secondary bond market also slowed – with weekly turnover falling 18.17 percent to GH¢906.14million from GH¢1.11billion the previous week. The February 2027 bond led market flows with GH¢416.01million in volumes traded.

Trading was concentrated in the 2027–2030 maturities, which accounted for 61 percent of activity at a weighted average yield to maturity (YTM) of 16.08 percent. Bonds maturing between 2031 and 2038 made up the remaining 39 percent of trades, with an average YTM of 16.40 percent.

Databank attributed the subdued activity to restrained investor sentiment. “We attribute the low turnover to subdued investor participation amid cautious sentiment,” it said.

Looking ahead, Databank expects “modest activity as asset managers rebalance portfolios ahead of month-end”.

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