A financial analyst has dismissed concerns that recent treasury bill undersubscriptions signal a loss of investor confidence in Ghana’s government securities, describing the market behavior instead as a rational pursuit of better returns.
Mac-Jordan Nartey, senior research analyst with Laurus Africa Securities, told The High Street Journal that investors are not shying away from government instruments out of fear or uncertainty, but are simply being strategic in chasing higher yields available elsewhere in the market.
His comments address growing anxiety after the government missed its treasury bill target by over 30 percent, ending months of oversubscriptions that had characterized Ghana’s money market. The shift prompted speculation about whether investors were losing trust in short-term government instruments.
Nartey pointed to a significant yield gap that explains investor behavior. The Bank of Ghana recently absorbed liquidity worth approximately GH₵9.5 billion at an interest rate around 21 percent, while the 91-day treasury bill yield stood at just about 10.47 percent. For investors, this disparity creates a clear incentive to seek alternatives offering better risk-adjusted returns.
“It will be quick to say that investors are losing confidence in the securities of Ghana. I think their confidence is still there. What we are seeing is a large play of investors’ need for higher returns,” Nartey explained. “As a rational investor, if you have two options, you will most likely always opt for what really balances your risks and still gives you the optimum and the highest return.”
The analyst’s interpretation reframes what might appear as troubling market dynamics into ordinary investor behavior responding to price signals. When the central bank offers substantially higher rates for its own instruments, money naturally flows toward those opportunities rather than settling for significantly lower government bill yields.
This insight suggests that monetary policy tightening and liquidity management operations by the Bank of Ghana have significant influence on patronage of government short-term bills. The central bank’s actions, intended to manage inflation and stabilize the cedi, create competing investment options that can inadvertently reduce demand for treasury instruments.
Recent auction results support Nartey’s analysis. The Treasury received GH₵2.59 billion in total bids but accepted GH₵2.57 billion, with the auction undersubscribed by 30 percent. Government treasury bills have recorded undersubscription for six consecutive weeks according to Bank of Ghana auction results, as investors increasingly prefer central bank instruments offering higher yields.
The pattern suggests investors are making calculated decisions rather than fleeing government securities wholesale. They’re comparing yields, assessing risk, and allocating capital accordingly. This represents healthy market functioning rather than crisis behavior.
However, the situation raises important questions for policymakers. If treasury bill rates remain uncompetitive compared to Bank of Ghana instruments, the government may struggle to meet its borrowing targets through the domestic money market. This could force either higher interest rate offers or greater reliance on other funding sources.
The yield gap also signals potential misalignment between fiscal and monetary policy objectives. While the Bank of Ghana seeks to tighten monetary conditions by offering attractive rates for its liquidity absorption operations, the Ministry of Finance needs to borrow affordably to fund government operations. These competing priorities can work at cross purposes.
For the government, persistent undersubscriptions create fiscal management challenges. Treasury bills provide short-term financing for budget gaps and help manage cash flow timing mismatches between revenue collection and expenditure obligations. When auctions consistently fall short, it complicates financial planning and may necessitate drawing down reserves or seeking alternative funding.
The Ministry of Finance has several options to address the situation. It could raise offered yields on treasury bills to competitive levels, though this increases borrowing costs. It could reduce borrowing targets to match realistic market appetite. Or it could coordinate more closely with the Bank of Ghana to ensure monetary operations don’t excessively crowd out government securities.
Market analysts believe the undersubscription was expected, given the gradual decline in bids over the past two weeks, suggesting the market is approaching a yield equilibrium as demand and supply stabilize. This perspective indicates that current dynamics may be transitional rather than permanent.
From an investor standpoint, the availability of higher-yielding alternatives represents opportunity rather than problem. Pension funds, insurance companies, and individual savers benefit when they can access better returns on their capital. The challenge for government is ensuring its securities remain attractive enough to maintain a functioning domestic debt market.
The situation also highlights the sophistication of Ghana’s financial markets. Investors actively compare options, respond to price signals, and reallocate capital based on risk-return calculations. This market efficiency benefits the economy long term, even if it creates short-term complications for government borrowing.
Nartey’s analysis suggests that restoring robust demand for treasury bills requires making them more competitive. “We are just seeing a rational play of investor behavior on the market and not necessarily investor confidence dampening in the government securities,” he noted, emphasizing that the fundamentals remain sound even as tactical allocation shifts.
The analyst’s framing matters because misdiagnosing the problem leads to inappropriate solutions. If policymakers mistakenly interpret undersubscriptions as confidence crisis requiring dramatic intervention, they might overreact in ways that create unnecessary market disruption. Understanding that investors are simply seeking better returns allows for more measured policy responses.
Looking ahead, the government faces a balancing act. It needs to offer treasury bill rates attractive enough to meet borrowing targets without pushing yields so high that debt service costs become unsustainable. Meanwhile, the Bank of Ghana must manage liquidity conditions to control inflation without inadvertently starving government securities of investor interest.
The coming weeks will reveal whether the government adjusts its approach. If yields on treasury bills rise to narrow the gap with Bank of Ghana rates, auction performance should improve. If the spread persists, undersubscriptions may continue as investors rationally pursue superior returns elsewhere.
For now, at least according to Nartey’s assessment, there’s no need for alarm about investor confidence. The market is working as markets should, with capital flowing toward the best risk-adjusted opportunities available. That’s rationality, not panic.
Source: newsghana.com.gh
