91-day T-bill yield to touch 20% at next auction; as secondary market remains flat

The yield on benchmark 91-day Treasury bills (T-bills) is expected to reach the 20 percent mark for the first time since the third week in March, marginally raising government’s cost of borrowing.

Yields on the shortest-tenor bill jumped from 12.52 percent at the beginning of 2022 to a high 35.75 percent at the beginning of February 2023, on account of government’s inability to access the international capital market as well as the domestic primary market grinding to a halt due to the Domestic Debt Exchange Programme (DDEP).

The Treasury had embarked on an aggressive market correction spree at the beginning of March, in a bid to reduce the cost of servicing its obligations as well as bring the rates in line with the newly issued bonds.

At the Friday, March 3, 2023 auction, government rejected all bids for short-term instruments at the prevailing rate of 35.66 percent and accepted them at 24.16 percent. Subsequently, the 91-day bill yield tumbled to 18.5 percent on March 20 – with some analysts anticipating it will be further pushed down to as low as 15 percent.

But the protracted nature of obtaining board-level approval from the International Monetary Fund (IMF) for the US$3billion facility for balance of payment support – and investor apathy toward long-term Treasury instruments – has ensured that demand for T-bills, particularly the 91-day variant, remains strong.

Commenting on the development, Director of Business Operations at Dalex Finance, Joe Jackson, said even if the rate rises to 20 percent, he expects it to beat a retreat shortly as modest optimism builds over the imminent IMF deal.

“There is no danger of things spiralling out of control any time soon; and we actually expect a bit of market stability following the good sounds that we have heard, particularly coming from Washington,” he said.

However, valuation issues and uncertainty in the secondary bonds market may continue to affect trading activity, with investors showing more interest in money market securities.

Last week, the yields for T-bills in the primary market inched to 19.74 percent and 22.47 percent for the 91-day and 182-day tenors respectively. This happened after the Issuer accepted all the bids – exceeding the auction target and refinancing obligation, with debt service coverage ratios of 1.08x and 1.13x respectively. However, appetite for the 364-day instrument declined as reflected by the six basis points (bps) drop in its yields to 26.90 percent.

“We expect the alternative funding source to reduce reliance on short-term funding and enable yield compression on the T-bill market,” Databank Research stated in a note on the market, pointing to Finance Minister Ken Ofori-Atta’s new timeline of May 2023 as the tentative date for IMF board-level approval.

Last week, the market recorded only two trades in the 2027 and 2037 tenors valued at GH¢23million; a 90.33 percent week-on-week decline, traded at prices around par.

“However, the volume of bills traded increased by 50.9 percent to GH¢717million,” GCB Capital noted in its assessment of the market.

At the beginning of this month, the bond market saw a notable increase in volumes traded, spurred on by the new bonds with a corresponding value of GH¢ 227.44million and representing a 459 percent increase from the previous week’s GH¢40.72million.

However, Databank Research maintains that this will continue with limited activity for GoG debt on the secondary market due to “persisting payment-in-kind (PIK) valuation uncertainty”.

“Trades on the new bonds continue to hover around par levels, as the few recorded trades do not materially influence prices. Investors have narrowed their focus on the secondary market, with more interest in money market securities, while valuation issues continue to impact the attractiveness of new bonds,” noted Databank Research.

At the upcoming auction on Friday, April 21, 2023, the Treasury aims to raise GH¢1.96billion across the 91-day and 364-day bills, with part of the proceeds to be used for refinancing maturing bills worth GH¢1.75billion.