The government continues to experience excess demand for its short-term debt instruments or T-Bills forcing a continuous rejection of some bids.
For about four weeks now there has been excess funds chasing the government’s treasury bill instruments.
The latest auction results published by the Bank of Ghana reveals that the trajectory of massive oversubscription continued last week as the government received bids worth GH¢18.2 billion. Meanwhile, the planned target was to borrow just GH¢ 6.5 billion. This represents an oversubscription of 181%.
The government only accepted an additional GH¢924.9 million to its target, accepting a total of GH¢7.4 billion. This means a total of GH¢10.8 billion worth of bids were returned back to investors.
Amid the mass demand for the instruments, interest rates on the bids also continued with its downward trend dropping significantly to reduce the cost of borrowing for the government.
The rate on the 91-day bill dropped from 24.4786% to 20.7906%. The 182-day bill also saw a drop from 25.3874% to 22.9851%. In addition, the rate on the 364-day bill saw a significant decline from 27.2996% to 22.6994%.
The government’s recent strategy of rejecting excess bids is seen as a positive step in addressing debt challenges, as it helps lower borrowing costs and slows the rate of debt accumulation.
Industry experts suggest that the large-scale rejection of bids is a calculated move to secure more favorable interest rates. By rejecting bids, the government effectively pushes rates down, a trend that has been observed in recent auctions.
The repeated oversubscription in recent weeks is believed to be a rollover effect, where investors who had their bids rejected in previous auctions carry them forward to the next. With the latest wave of rejections, a similar rollover is expected in upcoming auctions.
Analysts attribute the surge in demand for short-term instruments to the ongoing suspension of the bond market following the Domestic Debt Exchange Program (DDEP). They argue that with limited alternative investment opportunities, many investors are turning to short-term bills as a safer option.
Meanwhile, government has announced that it will borrow just GH¢5.7 billion in the next auction. Despite the lower target, 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.
