Low and ominous murmurs are circulating through Ghana’s banking halls regarding the sale of treasury bills, suggesting that something may be amiss.
Most casual observers are familiar with three types of treasury bills: 91-day, 182-day, and 1-year. It’s commonly understood that longer durations generally yield higher interest rates. While terms like “duration risk” may be unclear, the intuition remains that if the government wants to hold onto our money longer, it must offer a better return.
However, in early 2023, the Ghanaian government quietly introduced three new treasury bill options—35-day, 49-day, and 77-day bills—without much public attention. Although the sale of over 2.4 billion GHS of these new bills might seem insignificant against the backdrop of the government’s heavy borrowing, investment professionals raised eyebrows at the timing. This was during a period of severe financial distress for the government, marked by a contentious debt exchange and impending haircuts. Issuing short-term debt like 35-day bills appeared desperate.
Globally, treasury bills with durations shorter than three months are rare for central governments. While central banks often use them for open market operations, it’s uncommon for governments to issue such short-term debt. For example, Tanzania previously experimented with 35-day bills but eventually banned them due to inefficacy. The Philippines followed a similar trajectory, reintroducing 35-day bills only for emergency fiscal needs.
Throughout most of 2024, the Ghanaian government refrained from selling these short-term treasury bills. However, in August 2024, over 810 million GHS worth of 35-day and 49-day bills suddenly appeared for sale, accounting for more than half the volume of the established 182-day bills.
The issue lies in the fact that these new bills are not auctioned like their longer counterparts, resulting in opaque pricing. The Finance Ministry’s debt reports do not disclose discount or interest rates for these instruments. Institutional investors typically prefer longer-dated bills to minimize rollover risks, while speculators may be more inclined toward short-term options. This brings us to the current situation.
Recently, the market dynamics have shifted dramatically. Because these bills aren’t widely advertised and many investors are unaware of them, brokers tasked with reselling them are resorting to aggressive door-to-door marketing. Reports indicate that some brokers are offering astonishing interest rates—up to 29% for these short-term bills! In one instance, a broker from a new brokerage firm pressured a bank to acquire these bills at rates as high as 35%.
What’s behind this trend? It seems suspicious that, amidst the government’s struggles to sell standard treasury bills—only about 70% of which were sold last week due to stagnant rates—lesser-known brokers are selling government debt at exorbitant rates. Investor confidence has waned due to a combination of factors, including new Bank of Ghana reserve rules, fears of default, and general liquidity preferences.
This situation raises concerns about potential underhanded dealings in the treasury bill market. It suggests that the government’s cash crunch may be more severe than publicly acknowledged. Rather than increasing rates at official auctions—an admission of financial difficulty—the government might be opting for a discreet approach, allowing higher-rate bills to be sold through brokers.
As word spreads among investors and confidence continues to erode, the image of brokers aggressively marketing treasury bills as if they were contraband does little to bolster trust in the system.
Written by Bright Simons
www.brightsimons.com
