The government‘s borrowing target on the T-Bills market continues to suffer hitches as the market has recorded another undersubscription, marking a fifth consecutive week that bids submitted have fallen below expectations.
This fifth week of undersubscription continues to raise concerns about investors‘ confidence in the T-bills since interest rates have significantly fallen, eroding investors’ returns.
The latest auction report published by the Bank of Ghana reveals that the government’s target for last week fell short by GH₵ 300 million, threatening the funding of the state’s recurrent expenditure.
From a relatively high target of GH₵ 4.6 billion two weeks ago, the government planned to borrow a lesser amount of GH₵ 3.9 billion last week. At the end of the auction, total bids submitted by investors amounted to GH₵ 3.6 billion, resulting in a shortfall of GH₵ 300 million. This represents an undersubscription rate of a marginal 7.7%.
The majority of bids came from the 91-Day bill, with bids amounting to GH₵ 2.9 billion. The 182-Day bill also contributed GH₵ 616.75 million, while the 364-Day bill also amounted to just GH₵ 129.60 million.
Despite failing to meet its target and in accordance with its own agenda to beat down the interest rate, the government rejected a portion of the insufficient bids tendered by investors. Out of the total bids of GH₵ 3.6 billion, the government accepted only GH₵ 3.3 billion, rejecting an amount of GH₵ 217 million.
This rejection, experts say, is mostly a result of the high interest rate charged by investors, which fails to meet the government’s target rates.
On the interest rate front, the downward trajectory on the yield curve continued as the rates on all bids recorded a very slim decline.
From the auction report, the yield on the 91-day bill marginally declined from 14.6976% to 16.6938%. The 182-day bill also declined from 15.2540% to 15.2506%. while the rate on the 364-day also fell to 15.6564% from 15.6936%.
Already, considering the persistent shortfall in the government’s target in recent weeks, amid falling interest rates, there are growing concerns for the government to raise the raise to attract investors. It is believed that investors are shying away from the bills due to the low returns it now offers.
The consistent drop also has implications for the government’s budget funding since alternative funding sources are limited. Despite he consistent undersubscription, it is the agenda of the government to bring down the interest rate even further.
It is however unclear how the government will navigate this maze of consistent shortfall amid the dropping rates.
In the meantime, the government plans to raise a lesser amount of GH¢ 3.4 billion in its upcoming auction this week. Market watchers are closely monitoring the market to see if there will be a turnaround or if the undersubscription streak will persist.
-thehighstreetjournal.com
