T-bills: Yields to decline further; Government got GH¢136.87bn in quarter one

The fixed income market is expected to see gradual yield declines. This is due to an aggressive treasury stance and potential bond issuance.

Databank Research’s Quarterly Report predicts a downward trend in yields. This trend will likely start from the second quarter of 2025. It is supported by improving macroeconomic fundamentals and better investor sentiment.

The report states, “We expect yields across the LCY yield curve to decline.” However, high T-bill maturities and negative real returns may keep yields between 16.50% and 15.00% in Q2 2025.

High Open Market Operations (OMO) interest rates pose risks. They provide competitive alternatives for key players like commercial banks in the T-bill market.

Investor optimism should strengthen due to market-friendly reforms. A clearer fiscal consolidation path will also help boost confidence.

The government’s commitment to fiscal discipline is crucial. The 2025 budget includes a GHS10 billion cut in expenditure. Revenue is expected to increase by GHS37 billion, reducing reliance on short-term funding.

This approach may improve sovereign risk ratings over time. Disinflation could continue, aided by base effects and stable commodity prices. A stable exchange rate may anchor expectations for lower yields, especially at the front of the yield curve.

The outlook for the bond market remains uncertain. Databank Research maintains a cautiously optimistic view.

While the 2025 budget suggests possible issuance by year-end, no issuance is expected in Q2 2025. Current yields are too high for cost-effective long-term issuance.

Investors are likely to demand a steep risk premium now. This makes long-tenor issuance unattractive at this stage.

Thus, we expect the treasury to be cautious about long-term bond issuance while lowering T-bill yields aggressively.

In Quarter 1, the government received GH¢136.87 billion from T-bills. This was across various maturities from 91 days to 364 days against a target of GH¢83.74 billion.

The Treasury accepted GH¢95.01 billion in bids during this period. Notably, demand for the 364-day bill surged by 171% quarter-on-quarter to GH¢19.77 billion as investors sought higher yields amid declining interest rates.