Another Massive Rejection Hits T-Bill Market — The government’s short-term instruments market continues to experience huge oversubscriptions leaving the government no choice but to reject some bids.
The government in the previous auction rejected GH¢8.4 Billion worth of bids after receiving a little over GH¢ 17 billion although it planned to borrow only GH¢8 billion.
A more profound trend was replicated in the latest auction last week. The latest auction result published by the Bank of Ghana reveals that although the government planned to borrow just GH¢7.7 billion, total bids received amounted to a whopping GH¢20.5 billion. This represents an oversubscription of 167% which is almost thrice the target.
Amidst the massive oversubscription, the government only accepted GH¢9.6 billion from the GH¢ 20.5 billion bids. This means the government only accepted an additional GH¢1.9 billion to its target of GH¢7.7 billion to arrive at the GH¢9.6 billion.
This implies that a total of GH¢10.9 billion, representing more than half – 53% of the entire bids were rejected by the government.
Interestingly, amidst the massive oversubscription is a downward trend in the interest rate. That is the continuous reduction in the yield rate is not deterring investors from investing in the government’s short-term instrument.
From the latest auction results, the rate on the 91-day bill declined from 26.8591% to 24.4786%. The 182-day bill also saw a reduction from 27.8051% to 25.3874% while the 364-day bill also reduced from 29.0745% to 27.2996%.
This means a more reduced cost of borrowing for the government and hence a slow rate in the accumulation of debt.
Some industry experts tell SKB Journal that the massive rejection of the bids in recent times is a deliberate attempt by the government to get a favorable interest rate. A rejection of bids is likely to beat down the interest rates. This approach of the government seems to be working as the rate has been declining in the past auctions.
The massive oversubscription in the past weeks is believed to be a rollover of the previous auctions’ rejected bids that investors carry over to the new auction. With the latest massive rejection, it is anticipated that rejected bids will be carried over in the next auction.
Some analysts believe that the mad rush for short-term instruments is a result of the suspension of the bonds market due to the Domestic Debt Exchange Program (DDEP). These analysts also believe there is no viable other investment avenue to put their funds hence the mad rush for the short-term bills.
Economists such as Prof. Patrick Asuming say the rejection of the bids by the government is in the right direction considering the economy‘s debt stock.
Although the government has announced that it will borrow just GH¢6.5 billion in the next auction, it could be highly expected that this bid will also be oversubscribed considering the chunk of funds in the system seeking to purchase the short-term instrument of the government.
