Ghana’s T-bill yield strategy tested as sixth straight auction falls short despite declining inflation

By Emmanuel Boateng

Government raises GH¢2.97bn out of GH¢3.36bn target; yields fall below monetary policy rate, risking investor disengagement

Ghana’s domestic debt market remained under pressure for a sixth consecutive week as the government failed once again to fully meet its short-term borrowing target at the July 3 Treasury bill auction (Tender 1962). Despite reducing the auction size to GHS3.356 billion, the lowest in over a month, the government raised only GHS2.968 billion, signaling persistent weakness in investor demand and growing concern over the sustainability of current yield suppression efforts.

According to the Bank of Ghana’s auction summary, all bids submitted were accepted in full, yet total tenders still fell short of the target by nearly GHS388 million. The result follows five straight weeks of undersubscription, during which the government has steadily lowered both its funding targets and accepted yields in an attempt to rein in borrowing costs. However, market observers say the strategy may now be reaching its limits.

A closer look at the breakdown reveals continued dominance of the 91-day bill, which attracted GHS2.03 billion in bids. The 182-day and 364-day instruments followed with GHS622.79 million and GHS316.27 million, respectively. While these figures represent a slight improvement in long-tenor participation compared to previous auctions, they remain well below what is needed to support rollover needs and fiscal liquidity.

Yields, meanwhile, continued their downward drift. The 91-day rate declined to 14.5669 percent from 14.6938 percent the previous week, while the 182-day and 364-day bills fell to 15.0192 percent and 15.1679 percent, respectively. These rates now hover just above Ghana’s June inflation figure of 13.7 percent, which has declined steeply from 18.4 percent in April. While the easing inflation trend supports a lower interest rate environment in principle, the growing gap between T-bill rates and the Bank of Ghana’s Monetary Policy Rate, currently held at 28 percent, is raising questions about market alignment.

This divergence is undermining investor incentives, particularly for institutional players who rely on positive real returns to justify their participation. “Inflation is falling, but the policy rate remains high for a reason, to anchor expectations and stabilize the currency,” noted one research analyst of ZED Multimedia. “If T-bill rates fall too quickly without a corresponding cut in the policy rate, investors may decide it’s not worth the risk, especially on the longer tenors.”

Indeed, the yield environment has become increasingly unattractive in real terms. With the 91-day bill now offering less than 1 percent real return above inflation, and the longer tenors only marginally better, there is growing concern that investors will shift their capital elsewhere unless rates adjust upward. While the government has succeeded in temporarily lowering its cost of borrowing, it risks doing so at the expense of market participation.

The looming test for this strategy lies in Tender 1963, scheduled for this week. The government has set a target of GHS7.525 billion, more than double this week’s figure. This sharp increase could reflect a combination of maturing obligations, front-loaded financing, or cash flow requirements. Whatever the rationale, analysts warn that without a reset in yields, the government may struggle to meet such a large target in the current sentiment environment.

Some market watchers suggest that a modest upward adjustment in rates, particularly on the 182- and 364-day instruments, could help rebalance the risk-reward calculus without significantly undermining fiscal objectives. Others argue that enhanced communication around the rationale for auction targets, as well as clarity on the role of monetary policy in yield guidance, would help improve investor confidence.

In the meantime, the government finds itself in a precarious position, caught between the need to finance operations and the desire to project fiscal discipline. With inflation easing and macroeconomic stability showing signs of improvement, the current moment presents both an opportunity and a risk. A well-timed policy recalibration could stabilize the domestic debt market and rebuild market trust. But without one, the Treasury’s cost-control strategy may continue to yield diminishing returns.

Tender 1962 Results (July 3, 2025):

• Target: GHS3.356 billion
• Bids Received: GHS2.968 billion
• Amount Accepted: GHS2.968 billion
• 91-day yield: 14.5669 percent
• 182-day yield: 15.0192 percent
• 364-day yield: 15.1679 percent
• Inflation (June 2025): 13.7 percent
• Monetary Policy Rate: 28 percent
• Next Week Target (Tender 1963): GHS7.525 billion