Falling investor interest drags treasury bill sales down

By Rebecca Okine

Economic analyst Emmanuel Boateng has attributed the recent undersubscription of Treasury Bills (T-bills) to weak investor appetite and unattractive interest rates.

His comments follow the Bank of Ghana’s report that the government fell short of its Treasury Bill target for the third consecutive week.

According to the central bank’s latest auction results, government aimed to raise GHS4.2 billion but secured only about GHS2.7 billion, representing a shortfall of more than 35 per cent.

The undersubscription, analysts say, raises fresh concerns about the government’s ability to rely on short-term domestic financing to meet its obligations.

Speaking on the Business Breakfast on Zed 101.9 FM yesterday, Mr Boateng explained that the consistent shortfalls point to a growing disinterest among investors in government securities.

“Investor demand for T-bills has been weakening because of what we have seen over the past two weeks. The latest auction result was about 35.6 per cent short of the GHS4.2 billion target, and the significance is really profound because T-bills are one of the government’s primary tools for short-term domestic financing,” he said.

He posited that the undersubscription is both a reflection of low investor interest and the government’s unwillingness to accept higher borrowing costs.

“Missing its target signals either insufficient investor demand or the government’s reluctance to accept high-cost risk. In this particular auction, I believe both factors came into play,” Mr Boateng observed.

Comparing current market trends with previous periods of oversubscription, the economic analyst noted that the recent dip marks a sharp turnaround.

“We have seen high levels of subscription before, so if all of a sudden, for three consecutive weeks, the government is missing its target, and at the same time the volume of bids from investors is also falling alongside declining rates, then clearly the appetite is weakening because the rates are not attractive enough,” he stated.

Mr Boateng further highlighted the gap between lending rates and returns on T-bills as a major concern for rational investors.

“The cost of borrowing across banks averages between 22 and 27 per cent, while investors are getting around five per cent or less on T-bills. Naturally, investors would look elsewhere for higher compensation for the risks they take,” he explained.

The economic analyst also pointed to the performance of the premium market, which he described as offering little incentive for investors seeking alternative options.

“We are not seeing any significant gains in the premium market either, so investors are shifting their attention to other opportunities that can guarantee better returns,” he indicated.

The economic analyst emphasised that unless the government adjusts its interest rate policy or restores confidence in the short-term securities market, the trend of undersubscriptions may persist.

“The rational investor will always chase value. Until the government finds a balance between the cost of borrowing and investor confidence, this challenge will continue,” Mr Boateng added.