T-Bill under-subscriptions likely to persist as investors chase higher yields – Databank Research

Market watchers anticipate continued under-subscriptions in the coming weeks as investors shift their focus to alternative assets offering more competitive returns.

This comes amid a trend of declining interest in short-term government securities, with the first auction in July recording an 11.56% week-on-week undersubscription.

According to Databank Research, the ongoing decline in yields, coupled with inflation currently at 13.7%, suggests that lower returns on investment is likely to persist.

The Treasury is expected to re-enter the local bond market soon, aligning with its strategy to issue longer-term securities to finance upcoming debt at more sustainable cost levels..

In a statement, Databank Research noted that it believes this move is part of a broader strategy to issue longer-term instruments to refinance debt more affordably.

“We expect continued undersubscriptions in the coming weeks as investors prefer other competitive yield securities over T-bills. With inflation at 13.7%, yield compression is likely to persist as the Treasury prepares to re-enter the local bond market. We believe this timing aligns with their strategy to issue longer-term securities to finance upcoming debt at cost-effective levels.”

At last week’s auction, investor demand for T-bills remained weak, with total bids amounting to GHS 2.96 billion, falling short of the GHS 3.36 billion target.

However, the Treasury accepted all bids, which comfortably covered GHS 2.24 billion in maturities due.

The auction also saw a further decline in yields across all tenors with the 91-day bill down 13 basis points to 14.57%. The 182-day bill dropped 23 basis points to 15.02% and the 364-day bill fell 49 basis points to 15.17%

This underperformance underscores the current challenges in the short-term debt market, as investors await more favourable risk-return opportunities.