Despite recent undersubscription of Treasury auctions, the market anticipates further trimming of yields, driven by a favourable inflation outlook and the Treasury’s resolute focus on easing yields.
In the first quarter of 2024, T-bills yield across the curve shed an average of 3.49 percent, 3.63 percent and 3.61 percent for the 91-day to 364-day T-bills, respectively, amid an over-subscription of GH¢14.11billion.
However, following the implementation of the adjusted Cash Reserve Ratio (CRR), the Treasury underperformed its target in 4 out of 5 auctions settled in April 2024, raising GH¢15.60billion (-21.61 percent m/m), missing the gross monthly target by 9.73 percent and 3.90 percent below matured bills, according to Databank Research.
Nonetheless, the Treasury remained steadfast in trimming T-bill yields, as the 91-day shed 45 basis points to close at 25.55 percent, while the 182 and 364-day yields lost 85 basis points each, ending the month at 27.65 percent and 28.25 percent, respectively.
The under-subscription of Treasury auctions largely stems from the Bank of Ghana’s adjustments to the CRR for banks. Under the new policy framework, banks with loan to deposit ratios above 55 percent must maintain a 15 percent CRR, those between 40-55 percent face a 20 percent CRR, and banks below 40 percent are subject to a 25 percent CRR.
The three-tier CRR adjustment continues to weaken demand for GoG bills, with last week’s auction recording another shortfall.
The BoG underscores these measures’ necessity, highlighting banks’ prevailing trend of prioritising investments in government bills or BoG bills over private sector lending.
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This move responds to persistently weak private sector credit growth of 5.1 percent as of February 2024, compared to 29.5 percent growth in the same period last year. Conversely, bank investments in the government and BoG instruments saw a substantial 67.6 percent year-on-year increase.
The government plans to issue GH¢63.16billion gross from April to June 2024, with GH¢43.45billion for rolling over short-term maturities and GH¢19.71billion as fresh issuance to meet financing requirements.
“We expect the favourable inflation outlook to augur well for treasury yields in the money market, despite the high target size amid tightened demand conditions,” Databank noted.
Notable upside pressures persist from inflationary risks, including recent ex-pump fuel and transport price hikes. While the March 25.30 percent inflation increase is seen as transitory, prevailing and emerging upside risks to the near-term inflation outlook remain pronounced.
Amid lingering petroleum price pressures (largely exogenous), Brent crude oil may reach US$100/bbl. Resultant increases in ex-pump prices, potential transport fare hikes and second-round effects pose significant inflation risks.
The exchange rate outlook also hinges on limited FX supplies, with the recent depreciation’s pass-through effects expected to filter through to inflation.
Nonetheless, Apakan Securities affirmed in its weekly market review that: “Relatedly, we expect yields to continue their downward trend”.
