Decline in T-bill yields slower than expected

GCB Capital, an investment advisory firm, reported that year-to-date, the Treasury achieved an average yield compression of 2.08 percent, 2.2 percent, and 2.19 percent across the T-bill curve. This resulted in yields declining from the 29.36 percent – 32.5 percent levels at the end of 2023 to the 27.3 percent – 30.3 percent levels at the end of February 2024.

“At the end of 2023, headline inflation had cooled off sharply to 23.2 percent (-30.9 percent y/y), effectively returning nominal T-bill yields into positive real return territory,” highlighted GCB Capital.

“With improving inflation expectations and macroeconomic outlook and the strong level of investor demand, we expected a sharper yield compression for the period,” it said in a statement.

However, the firm noted that the Treasury’s strong appetite for short-term funds as the primary funding source for the 2024 budget and lingering near-term uncertainties have contributed to the persistent pricing of T-bills.

Also, Apakan Securities, in its outlook for the year, indicated that the assessment of T-bills’ maturities in the preceding quarter suggests an increased financing requirement for the government, potentially limiting the pace of the decline in yields.

The over-subscription of 35.4 percent reflects strong GH¢ liquidity conditions, with limited placement options for fixed-income investors. Total investor bids across the 91-day to 364-day tenors reached GH¢46.31billion, surpassing the Treasury target of GH¢33.72billion for the first two months. The Treasury accepted 99.49 percent – GH¢46.07billion – of the bids tendered, exceeding the target and refinancing obligation by 36.66 percent and 65.10 percent, respectively.

GCB Capital suggested that a stronger signal to the market, including lower price guidance, controlled appetite for short-term funds and stricter expenditure controls, could accelerate the pace of yield decline, realigning fixed-income yields and reviving activity in the secondary bonds market.

Market expectations anticipate strong demand for T-bills through March 2024, given heightened GH¢ liquidity levels on the interbank market. However, GCB Capital anticipates the Treasury tapering its appetite for short-term funds following coupon payments on the bonds and a relatively lower refinancing obligation for March 2024 G– H¢14.47 billion, about -21 percent m/m.

“We expect the Treasury to taper its appetite for short-term funds and use a combination of lower price guidance and controlled appetite for funds to drive the yield compression strategy despite the anticipated increase in inflation,” stated GCB Capital.

For investors, the advisory firm recommends a cautious approach, suggesting a strategy that targets the longer ends to lock in attractive yields, in anticipation of a slightly sharper decline in nominal T-bill yields in March.